Where and why public ownership has failed

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WHERE AND WHY
PUBLIC OWNERSHIP HAS FAILED

THE MACMILLAN COMPANY

NKW YORK • BOSTON • CHICAGO
DALLAS • ATLANTA • SAN FRANCISCO

MACMILLAN & CO., Limited

LONDON • BOMBAY • CALCUTTA
MELBOURNE

THE MACMILLAN CO. OP CANADA, Ltd.

TORONTO

WHERE AND WHY

PUBLIC OWNERSHIP

HAS FAILED

BY

YVES GUYOT

EDITOR-IN-CHIEF OF THE JOURNAL DES ECONOmSTES, PRESIDENT OF THE SOCI^TE
d'ECONOMIE POLITIQUE OF PARIS, MEMBER OF THE AMERICAN ACADEMY OF POLITICAL
AND SOCIAL SCIENCE, HON. MEMBER OF THE ROYAL STATISTICAL SOCIETY AND
THE COBDEN CLDB OF GREAT BRITAIN, FORMER VICE-PRESIDENT OF THE
UDinCIPAL COUNCIL OF PARIS, DEPUTY TO THE FRENCH PARLIA-
MENT AND UINISXER OF PUBLIC WORKS, ETC., ETC.

TRANSLATED FROM THE FRENCH BY

H. F. BAKER

.^tD |?orfe

THE MACMILLAN COMPANY

1914

AU rights resateS

.' K

E . WlVr !;:. I i i

l\.^^H^oo

CopnaoHT, 1914

btThe macmillan company

Set up and Alectrotrped. Fabllsbed Uarch, 1914.

PREFACE

The chief difficulty in preparing this book has been
to make a coherent arrangement of the material, as
the various sources from which it has been gathered
are more or less incomplete. Indeed the obstacles in
the way of presenting a true picture of industrial en-
terprises, as operated by states and local governments,
can scarcely be exaggerated.

The partisans of government and municipal owner-
ship of every species of public utility have assumed a
distinctive title. They call themselves representatives
of the movement for direct operation (Representants
de la Regie Directe). Their leader in France is Edgard
Milhaud, occupying the chair of Political Economy at
the University of Geneva, where he makes a special
point of emphasizing Socialism.^ In a little periodical,
entitled Annales de la Regie Directe, he presents the
case for all government and municipal undertakings,
although his enthusiasm frequently receives cruel set-
backs, as in the suicide of the Mayor of Elbeuf. He
has also published several articles for the purpose of
demonstrating that accidents are much less frequent
upon government railways than upon the lines of pri-
vate companies. We shall see later (Book 3, Chapter
' See La Democratie Socialiste Allemande, Paris, F. Alcan.

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

2) the value of these attempts to justify his creed, and
we may judge from them the importance that is to be
attached to his other statements.

For the academic year 1911-1912, L'&cole des
Hautes Etudes Sociales organized a series of confer-
ences on the subject of public operation under the direc-
tion of M. Milhaud. It was considered advisable that
at the close of this series a dissenting voice should
be heard — a role ultimately assigned to me. In addi-
tion to ten preceding lectures, wherein the whole
theory and practice of Socialism had been set forth,
M. Milhaud was to speak for forty minutes, after
which I was to be allotted forty in which to refute
the points previously developed by him during 640
minutes. Then we were both to be allowed twenty
minutes in order to sum up our arguments. I had at
least the satisfaction of knowing that L'Humanite ^
attached sufficient importance to this conference to an-
nounce that for several days before it was to take place
entrance tickets would be reserved for "comrades" ;
under which conditions it was not difficult to foresee
that the hall would be converted into a public assembly
room.

His audience, thus prepared and won over, natur-
ally gave M. Milhaud an enthusiastic welcome. How-
ever, despite some murmurs, it proved itself not
unwilling to allow me to oppose my facts to his state-
ments.

I borrow from the report of the discussion, as
published in L'Humanite, November 14, 191 1, the fol-
lowing resume of the argument of M. Milhaud :

^ The organ of the Socialist propaganda.

vi

PREFACE

"Private monopoly, seeking nothing but maximum
profit, is far more costly than public monopoly, which is
not bound by the same conditions. Money costs public
enterprises less, and, therefore, they can amortize their
debt and thus reduce general expenses. On the other
hand, heavier expenses for labor can be supported by
public undertakings. The management of a public enter-
prise can even hope for profit, and all this can be accom-
plished within less rigid limits than those which neces-
sarily confine private monopoly.

"Milhaud concluded by outlining the tendency of pub-
lic enterprises to become administrative autonomies. In
order that they may escape pernicious bureaucratic influ-
ences, they are being transformed into separate commer-
cial entities. Through increased control by the con-
sumer, on the one hand, and by labor on the other, they
are being gradually but completely socialized.

"Through reduction in prices, these enterprises create
larger bodies of consumers, and they also bring about
more flexible relations between employers and employed.
The representatives of collectivism, individual consumers
and producers, may thus unite in behalf of social
progress."

When we come to examine the assertions of the
propagandists of public operation, we perceive that
they are of no better quality than any other Socialist
theories; but the assured manner with which these
statements are declared succeeds in disturbing and in-
timidating many people. Yet, in the elections of 1910,
Paul Forsans, President of La Societe des Interets
£conomiques, was able to organize a vigorous cam-
paign against an alcohol and insurance monopoly.

French Socialists, unable to appeal to the experience

vii

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

of the Western (state) railroad, or the experience of
the town of Elbeuf, say : "Very good, but in Prussia
the state railways are altogether satisfactory, and, in
all the important cities of Great Britain, Municipal So-
cialism is enjoying a veritable triumph."

Such partisans quote the testimony of public depart-
ments, never weary of boasting of their own success-
ful administration, and of municipalities which, in-
spired by local pride, declare that they have accom-
plished miracles. But how can we accept these preju-
diced certificates of good conduct until we have been
privileged to make a detailed inventory?

There is a crying need at the present time for col-
lections of precise facts, which shall show the vanity
and "bluff" of Socialist programs, and such facts must
be placed before the public. My sole object in writ-
ing this book has been to present just such a compila-
tion of rigidly investigated, authentic facts and figures
regarding public ownership and operation. If I have
not been able to affirm that government and municipal
undertakings are efficient the fault is not mine. I have
not found them so.

A well-known American, Arthur Hadley, President
of Yale University, says, in his book entitled Eco-
nomics:

"The advantages of intervention on the part of a
government are visible and tangible facts : The evil that
results from such intervention is much more indirect and
can only be appreciated after close and intensive study."

I have vainly sought for the benefit arising from
public operation by states and municipalities. On the

viii •

PREFACE

contrary an unbiassed survey of the whole subject
forces me to testify to the resulting harm.

Y. G.
November, 19 12.

For the American edition the facts and figures
herein set forth have been brought up to date — June,

1913-

IX

TRANSLATOR'S NOTE

The translation has been read and revised by the
Author. Otherwise my hearty thanks for most valu-
able assistance given in translation are due to Miss
Elise Warren and Mr. William D. Kerr.

CONTENTS

BOOK I
Public and Pmvate Trading Operations

PAGE

I. Two Precepts i

II. The Three Main-Springs of Human Action 2

III. Determining Motives of Private as Against Public

Enterprises 5

IV. Government and Municipal Trading Operations 16

BOOK II

Financial Results of Government and Municipal Ownership

I. Bookkeeping in State and Municipal Trading Enter-
prises 35

II. The Belgian State Railroads 46

III. Prussian Railroads 55

IV. State Railways of Austria and Hungary 72

V. Italian Railways 77

VI. The Railways of the Swiss Federation 88

VII. Railways of New Zealand 94

VIII. Government Railroads in France 105

IX. Public vs. Private Operation 118 •

X. The Holy Cities of Municipal Operation 125

XI. Operation of Gas and Electricity in the United King-
dom 127

XII. Tramways in Great Britain 136

XIII. Housing of the Working Classes and Public Ownership

in Great Britain 151

XIV. Housing of the Working Classes (Continued) 161

CONTENTS

PAGE

XV. Government Control of Food Supplies 17S

XVI. Victims of Government Ownership 181

XVII. Charges, Debts and Credits 183

XVIII. Fictitious Profits 191

XIX. Fiscal Monopolies 194

XX. The Alcohol Monopoly in Switzerland and Russia . . . 205

XXI. Financial Disorder 216

XXII. The Purchase Price 241

XXIII. Delusions of Profit and the Life Insurance Monopoly

in Italy 243

XXIV. The Fiscal Mines of the Saar District 253

— XXV. Public vs. Private Enterprises 256

BOOK III

Administrative Results

I. Administrative Results 271

II. The Safety of Travellers upon State and Private

Railway Lines 272

III. Disorders, Delays and Errors 280

IV. Official Conservatism 292

V. Labor 300

VI. The Consumer 348

VII. Programs of Organization and Regulation 369

BOOK IV

Political and Social Consequences of Public Operation

I. Socialist Programs and the Facts 381

II. Blufi 394

III. Results of Experience 398

IV. The State a Dishonest Man 400

V. Corruption 423

VI. Nationalization of Public Utilities and the Foundation

of Great Fortunes 427

VII. Disintegrating Character of Public Operation 429

WHERE AND WHY
PUBLIC OWNERSHIP HAS FAILED

Where and Why Pubhc Owner-
ship Has Failed

BOOK I

PUBLIC AND PRIVATE TRADING
OPERATIONS

CHAPTER I

TWO PRECEPTS

Neither national nor local governments should
attempt that which can be done by individuals: says
the economist.

Labor for personal profit m,ust be replaced by labor
for the sake of service: answers the Socialist.

Experiments in the way of nationalization and mu-
nicipalization of public utilities, with the Socialist
ideal in view, have been sufficiently numerous. Do
they warrant the decision that nations and municipali-
ties have reaped the advantages promised by their
advocates? This question — primarily a psychologi-
cal one — we are going to try and answer in the fol-
lowing pages.

I

CHAPTER 11

THE THREE MAINSPRINGS OF HUMAN ACTION

1. Compulsion. — Bribery. — Instinct for Personal Gain. —

Government and Municipal Ownership Would Substi-
tute the First Two Influences for the Third.

2. No Dividends on Capital of Public Undertakings. — Inter-

est and Amortization. — The Altruism of Disinterested
Managing Boards. — Work for the Sake of Service.

I. Down to the present time there have been only
three mainsprings of human action — compulsion, bri-
bery and instinct for personal gain.

Compulsion is the true basis of confiscation and
slave labor. Give or I take. Work or I strike.

Bribery, in the way of high office, rewards, deco-
rations, rank and homage, helps to blind us to the pres-
ence of compulsion. The church, the schools, and the
army furnish the best and most familiar examples
of the effect of these two forces, which government
and municipal ownership would substitute for the in-
>iCentive of personal gain.

Neither compulsion nor bribery, however, has
proved quite sufficient to induce continuous action on
the part of employees and officials entrusted with the
operation of national and municipal services, for they
are utterly incompatible with any form of contract.
The very nature of a contract requires free assent to

THE THREE MAINSPRINGS OF HUMAN ACTION

its terms on both sides. Therefore, the third force,
the instinct for personal gain, is invoked.

Personal gain does imply a preliminary agreement
— assent on the part of him who offers his services as
well as of him who is to pay for them. Every group
of employees at the present day is working, not for the
sake of service, but for gain.

2. Is the management of a national or municipal
undertaking more economical than the management of
a private enterprise? "Yes," answers the Socialist,
"because no dividend need be paid on capital."

But there are interest and amortization to provide
for on capital. Consequently the margin of economy
is only the difference between interest and amortiza-
tion, which public undertakings must provide, and
dividends which the capital of private enterprises must
have.

"The high-salaried employees are paid less by pub-
lic than by private enterprises : and there are no boards
of financially interested directors," continues the
Sbcialist.

This is possible, but the salaries of ministers,
burgomasters and mayors are high ; though these high
salaries come from the exercise of several different
functions. It is probable that high-salaried govern-
ment employees are paid less than their colleagues
of the same relative rank in the employ of pri-
vate industry; but, in general, the personnel of
public undertakings is more numerous and the ex-
penses, therefore, amount to more in the long
run. The management of the Western (government)

3

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

railway, of France, for example, has established six-
teen directorships in place of the three departmental
divisions customary in the case of private railways.
There are no financially interested boards of directors,
but it is a question whether the altruism of the coun-
cils which direct and control national or municipal
undertakings is of greater advantage to these enter-
prises than personal interest would be.

In effect the partisans of public operation find
economy in the non-remuneration of capital, outside
of interest and amortization, and in the meager remu-
neration of promoters, directors, councillors, and the
chief managers of the enterprise.

CHAPTER III

DETERMINING MOTIVES OF PRIVATE AS AGAINST
PUBLIC ENTERPRISES

1. Why Do Individuals Establish an Undertaking?

2. The Motives of Politicians. — Sacrifice of the Service to

Personal Ends. — The Roof of the Louvre. — The De-
partment of Fine Arts (Beaux Arts).

3. The Freycinet Program.

4. Municipal Interests. — Public Officials.

5. Invidia Democratica — Appeal to Party Passions. — Pur-

chase of the Railways. — The Purchase of the West-
ern Line. — Socialization a Political Necessity.

6. Financial Aims and Hypocritical Excuses. — Pretexts

and Realities. — The Alcohol Monopoly in Switzerland
and Potatoes. — The Alcohol Monopoly in Russia, Tem-
perance and Fiscal Laws.

I. When one or more individuals invest their en-
ergy, their knowledge, and their capital in an indus-
trial enterprise they must be convinced beforehand
that in so doing they are responding to a demand on
the part of a group of consumers having a sufficient
purchasing power to repay them for their services, as
well as for the products which will be offered.

If the estimates of the founders of such an enter-
prise are correct, they will gain; if incorrect, they
will lose. In either case they will bear the responsi-
bility for their acts. Gain or loss is the inevitable

5

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

and infallible consequence of every such enterprise.
And, as every man who is on the point of engaging
in business knows that one of them must occur, his
energy is spurred on by the hope of the one, while
at the same time it is being curbed by the fear of the
other.

The industrial and commercial progress of all
nations far advanced along the pathway of evolution
proves that the majority of those individuals or
groups of individuals who have engaged in business
undertakings have calculated accurately.

2. Statesmen at the head of nations or municipali-
ties are not necessarily responsive to the conditions
just described. The undertakings in which they in-
volve the state or the municipality will not yield them
any personal profit in case they succeed, nor will they
be called upon to suffer any loss if they fail. The in-
evitable and infallible criterion of the business man is
lacking in their case. By what test, then, are their
motives to be construed?

As a rule their action is determined by the amount
of personal advantage resulting for themselves; not,
it is true, in the form of gain, but in the form of an
increase in the duration or extent of their power.
They establish such or such an enterprise, because, in
looking about for some bait likely to attract the pub-
lic, they have found this particular one. Does the
enterprise fill a long- felt want? That is a secondary
question. The first consideration is what will make
the broadest appeal to the popular prejudices and sym-
pathies of the moment. I have heard ministers and

6

MOTIVES OF PRIVATE AS AGAINST PUBLIC ENTERPRISES

deputies say: "There is nothing to do, but we must
do something."

Now expenditures which have a certain audacity
about them are sure to be accepted with a much better
grace than those which do not appeal to the imagina-
tion of the pubUc.

As an instance in point, let me quote from my own
experience.

When I became minister of Public Works I speedily
discovered that the government buildings under the
jurisdiction of my department were being very badly
kept up by the department of fine arts (Beaux Arts).
Knowing by personal experience the importance of
roofs I turned my attention first to them. In the case
of the Louvre, to quote but a single example, the
water leaking through the roofs was cracking the
walls. Moreover, not one of the seventeen lightning
rods attached to the building was in working condi-
tion, while the majority of them were so insecure that
they were liable to fall at any moment on the heads
of passers-by. I used the entire appropriation at my
disposal to insure an efficient roofing of the buildings
entrusted to my care. The rest could wait.

But, from the point of view of popularity, I had
made, as I had foreseen, a wretched move. That form
of flattery which consists in the sacrifice of one's
own to public opinion forms part of the very stock in
trade of the politician; and, if he is shrewd, he will
not hesitate to make the sacrifice.

Again, in 1902 the French Parliament passed a law
on public hygiene, under which municipalities are re-
quired to furnish drinking water and sewerage sys-

7

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

terns. A number of deputies and senators who had
voted for the bill hastened immediately to the minis-
ter of the interior to demand that the law should not
be applied to the municipalities in their particular dis-
tricts. And so it goes.

The following illustrates a different but equally-
dangerous tendency:

Certain officials of the Beaux Arts are provided
with funds for the purpose of placing orders or for
the purchasing of works of art at the salons. These
men are beset by recommendations and advice of all
sorts. Concentration of their appropriations upon
one important work is out of the question; they must
fritter them away in small amounts, because there are
so many people to satisfy. In all purchases of art
works there is, of course, a large proportion of mis-
takes, which will be accounted in the future as dead
losses ; but it is not necessary to begin by buying fail-
ures, as so frequently happens.

Nor does this criticism refer solely to contemporary
officials. Ministers and under-secretaries of state of
other periods than our own were equally human.
Side by side with the Thomi Thierry art collection
in the Louvre are to be found government purchases
of works by the same artists, made at the same time.
The degree of taste shown in the choice of the pic-
tures included in the Thierry collection is far superior
to that shown in the official collection.

3. In 1879 Charles de Freycinet prepared his grand
program of public works. There is no more agreeable
pastime than to prepare a program of .public works.

8

MOTIVES OF PRIVATE AS AGAINST PUBLIC ENTERPRISES

Hope is inspired, delusions encouraged, and we can
leave to our successors the trouble of realizing them.
All succeeding ministers of Public Works have been
liquidators of the Freycinet program. The spirit
which dictated it struck the public imagination. "The
government," it was said, with the hearty applause
of the French Parliament, "must assume charge of
the national savings." As if there were any savings
except those of individuals, and as if those who had
known how to accumulate them would not be more
careful to use them to good purpose than those who
had had no interest in their acquisition ! All the depu-
ties and senators demanded a share of the cake for
their constituents. M. de Freycinet yielded every-
thing, encouraged still further demands, and requested
engineers to submit plans for railways, canals, or
ports. The government concentrated all its energies
on carrying out his program.

In 1883, however, and as a result of all this, the
nation would have been bankrupt if M. Raynal had
not closed certain contracts with the railway com-
panies; contracts which Camille Pelletan later de-
scribed as infamous. But he has never explained what
the government would have done if the contracts had
not been signed.

4. A so-called movement of public opinion fre-
quently rewards intensive study. Any day you may be
suddenly aroused to the consciousness that there is a
movement on foot in favor of a certain public under-
taking. On the side you are informed that so and
so and so and so (local politicians) have made large

9

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

speculations in view of precisely this project. The
municipality, for its part, may placidly obey the hid-
den impulse. If not, the parties interested proceed to
take a more or less direct part in the struggle. In any
event the simple, hoodwinked people become very en-
thusiastic for or against the issue.

In 1902 the City of Birmingham decided to submit
a bill to Parliament which would permit it to take
over and operate its urban tramway system. A refer-
endum vote was taken. Out of 102,712 registered
electors, only 15,742, or 15 per cent, of the total elec-
torate, voted. Moreover, according to the Daily
News, "high officials of the town led gangs of munici-
pal workmen to the polls." ^ Major Leonard Darwin
says in this connection:

"The more energetic and able they (the officials)
are, the more likely will they be to view with favor
new projects connected with municipal trade." ^ In
the end, perhaps, such an extension of the official
functions will mean more work for such enthusiasts.
But their influence will probably be greater, and con-
ceivably even doubled, through the resulting increase
in their financial importance.

5. The promotors and leaders of movements in the
direction of government and municipal ownership fre-
quently resort to exciting and exploiting the so-called
invidia democratica, or democratic jealousy, one of
the plagues of the Roman Republic, and always in

* Raymond Boverat, Le Socialisme Municipal en Angleterre et
ses Resultats Financiers, p. 444.
^Municipal Trade.

10

MOTIVES OF PRIVATE AS AGAINST PUBLIC ENTERPRISES

evidence in an individualistic state. Men who are
at the head of private enterprises are denounced as
exploiting their fellow-citizens. Their profits —
usually exaggerated — are quoted, and the claim is
made that such moneys will be restored to the people
when governments, local or national, provide every-
thing and individuals nothing.

Was the object of the purchase of the Western
railway in France economy in expenditure and im-
provement in transportation faciHties? Not one of
those who demanded and voted for it dared to make
such a claim. With the lines belonging to the state
the deputies would have places for their constituents,
a certain right of political interference in the adminis-
tration, and hence a large degree of electoral influence.
Resolutions favoring the purchase of the Western
railway had been rife since 1902, but no minister of
Public Works had endorsed them. Immediately after
the elections of 1906, however, Georges Clemenceau,
then Minister of the Interior, started on a hunt for a
program which would be Socialist without being col-
lectivist. Socialism is the present phase of the move-
ment; collectivism is the Socialist's dream.

Clemenceau took from his predecessors: i. Noon-
day rest. 2. Limitation of working hours and a col-
lective labor contract. 3. The income tax. 4. Labor
pensions.

But he was also anxious, by socializing something,
to conciliate the Socialists and the Radical Socialists.
He therefore selected the purchase of the Western
railway as suited to his purpose. Then, in order to
be certain that the affair would go through, he impli-

II

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

cated Louis Barthou in the affair, in the latter's ca-
pacity of minister of PubHc Works, although Bar-
thou's antecedents did not point to him as especially
fitted to carry out such a measure.

6. One of the chief incentives to the establishment
of a government monopoly is the hope of procuring
resources without the stigma of an apparent fiscal
object attached. It is one way of making the tax-
payers pay taxes without perceiving that they are
taxes. As a matter of fact they are simply misrepre-
sented taxes. Appeals of their promoters to the moral
and hygienic interests of the nation, in order to effect
the desired object, are equally disingenuous.

For example, the alcohol monopoly in Switzer-
land was submitted to the people as designed to com-
bat alcoholism, while putting an end to the ohmgeld
duties, a sort of internal revenue duty. As for alco-
holism, the financial history of the individual cantons,
which have been receiving their share of the profits
of the monopoly for the purpose of fighting it, proves
just how relative has been the attention devoted to
the eradication of that particular evil.

But there was still another motive, although it has
been mentioned only in conversation. In Switzerland
every quart of alcohol is produced from potatoes.
Growers found that the distillers were buying their
potatoes too cheaply. Therefore, at the opportune
moment, the Federal government increased the pur-
chase price of domestic alcohol, saying to the potato
grower: "You see, we have increased the price of
alcohol. Whereas, in Austria, alcohol costs 20 or 30

13

MOTIVES OF PRIVATE AS AGAINST PUBLIC ENTERPRISES

francs, we in Switzerland pay more than 80 francs
for it; and we are doing so in order that you can
sell your potatoes at a good price. In other words we
are granting you a subsidy."

When the monopoly of alcohol was established in
Russia it was repeated in every key that the object in
view was moral and not financial. It was established,
in the first place, in order to ensure to the moujik
(peasant) absolutely pure alcohol. Emphasis was
placed on the characteristic retail shops of the gov-
ernment, kept by officials who can have no interest in
increasing consumption. There is neither chair, cork-
screw, nor glass in the shop; therefore, the moujik,
after buying, must go elsewhere to drink.

But, in 1912, the receipts from the monopoly on
alcohol were estimated at 763,990,000 roubles, out of
a total income of 2,896,000,000 roubles, or 26 per cent.
It is, therefore, easily surmised that officials charged
with the sale of alcohol would be held to a strict ac-
count if devotion to the temperance cause should hap-
pen to bring about a deficit in the budget. The moral
aspect of the monopoly is completely effaced by fiscal
interest.

M. Augugneur heads a local and national owner-
ship party. Why should he advocate public owner-
ship? Simply in order to have a platform — a reason
for party existence. The future of municipal or gov-
ernment undertakings is a secondary matter. What is
necessary is an issue which will lead to political action
and to immediate power.

If any enterprise inaugurated by a mayor or by a,

13

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

minister is difficult and useless neither the mayor, the
minister, the municipal councillors, the deputies, nor
the senators who have brought it into being will be
called upon to bear any material responsibility for it.
The taxpayers of to-day and to-morrow must assume
.the entire burden. Sometimes the failure of an un-
dertaking involves a decrease in the influence of the
politicians who were its promoters. But frequently it
increases their importance in the public eye.

The risks which the Freycinet program carried with
it; the uselessness of a quantity of the work included
in it ; the burdens which have accrued from the opera-
tion of railroads ; an excess of 30 per cent, in the con-
struction of navigable ways which are not yet fin-
ished, all this has in no way injured the prestige of
the author of that program. The advocates of the
purchase of the Western line are coping cheerfully
with the deceptions it has engendered, and they imag-
ine — and rightly — that no one, or almost no one, has
ever placed in parallel columns their promises and
the actual facts.

Again, had M. Barthou conducted a private business
after the fashion in which he carried through the pur-
chase of the Western road, he would long since have
been branded as a defrauding bankrupt. As a public
official the state has rewarded him for his efforts in
this direction with the premiership of France.

Conclusions.

I. Any private undertaking has a definite objective
point — gain; and a certain test — gain or loss.

14

MOTIVES OF PRIVATE AS AGAINST PUBLIC ENTERPRISES

2. The motive behind municipal and national un-
dertakings is usually political or administrative in-
fluence for their promoters.

3. The promoters of public undertakings escape all
material and — generally — all moral penalty.

^5

CHAPTER IV

GOVERNMENT AND MUNICIPAL TRADING OPERA-
TIONS

1. The Report of Gustave Schelle to the International Sta-

tistical Institute. — List of Public Industrial Operations.
— Postal, Telegraph and Telephone Systems. — Mints.

2. Public Trading Enterprises of Denmark, Switzerland,

Holland, Italy, France, Belgium, Sweden, Austria,
Germany.

3. The United Kingdom and the United States.

4. The London County Council.

5. The Municipal Activity of Russia.

6. New Zealand. — Government Socialism More Fully De-

veloped Than in Any Other Country. — Socialist Enter-
prises.

7. Nationalization of the Soil in New Zealand.

8. Government and Municipal Trading Operations Re-

stricted in Scope.

I. When zealots in the cause of "a transference of
trading and commercial undertakings to public bodies"
declare that it is a general and irresistible movement,
they are mistaking their hopes for an accomplished
fact. Public trading enterprises in actual existence are
relatively few.

During the session of the International Statistical
Institute of 1909, at the suggestion of MM. Arthur
Raffalovich and Gustave Schelle, a committee was

16

GOVERNMENT AND MUNICIPAL TRADING OPERATIONS

appointed for the purpose of collecting statistics re-
garding state and municipal trading undertakings.
The members of this committee were: Yves Guyot,
chairman; Gustave Schelle, secretary, and MM. Col-
son, Rafifalovich, Fellner, Nicolai and Hennequin.
The report of this committee was presented to the
session of the International Statistical Institute which
met at The Hague in 191 1.

The industries monopolized by nations or cities ap-
pear in the report as follows : The postal systems in
every country and telegraphs and telephones in every
country except the United States. All governments
coin money, either free, as in England, or for a slight
charge. ^ In the following summary we will not speak
of these four utilities unless they present some special
characteristic peculiar to the country under consid-
eration.

2. The report begins with Denmark. It is gener-
ally known that this country is very active and very
highly developed industrially. Its population, how-
ever, is smaller than that of the city of Paris.

Denmark operates, in connection with its army,
twenty public enterprises, employing altogether 2,335
people. The railway system comprehends 37 enter-
prises, employing 4,797 people. In addition to these
there are 16 other enterprises, employing 279 people,
and including a dressmaking establishment and a work-
shop attached to the royal theater.

The total number of these enterprises is thus Tz^
employing 7,411 people, of whom 7,166 are laborers.
But the majority of Danish state undertakings are

17

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

only semi-public in character. The principal object of
the factory at Usserod is the manufacture of cloth
for the Army and Navy, but it has a retail shop
for the benefit of the public. The powder mill of
Frederiksvark has a monopoly of the manufacture
of powder. The three ports of Helsingor, Frederiks-
havn, and Esbjerg are the three great ports of the
state. The royal manufacture of porcelain is not
counted among government industries.

As for the towns the census of 1906 gives 43 water
works, I street paving enterprise, 2 embankment en-
terprises, I dredging undertaking, 2 construction un-
dertakings with 29 workmen, i shipyard, i combined
gas and water plant, 2 moulding undertakings, i in-
stallation of electrical apparatus, 8 plants for the
production and distribution of electricity, 60 gas
works, 2 wrecking enterprises, and, finally, i chimney
sweep and i machinist, each of whom is considered as
a municipal enterprise. The total is 126 enterprises,
employing 2,274 people, or an average of 18 persons
each.

In Switzerland the state alcohol monopoly buys po-
tato spirit and sells it again. It does not manufacture
it. The state both owns and operates its railways.

In Holland the state publishes an official journal
and operates the Wilhelmina and Emma pit coal mines.
The government railways are operated for the state
by a private company.

For Italy, Giovanni Giolitti, then minister of the
Interior, had already furnished statistics of the

18

GOVERNMENT AND MUNICIPAL TRADING OPERATIONS

principal municipal trading undertakings up to
1901, in a report presented to the Chamber of
Deputies, March 11, 1902. The report lists 171
slaughter houses, 151 water works and artesian
wells, 24 plants for the production of electrical
energy, 20 public laundries, 15 gas works, 12 under-
taking enterprises, 12 public baths, 4 ice plants, 3
sewage disposal plants, 3 irrigation enterprises, 2
bakeries, 2 pharmacies, and a few other less important
services. The railways are state-owned and operated.

The law of March 29, 1903, enumerates 19 enter-
prises which municipalities may undertake. Outside
of the usual services, water, gas, electricity, etc.,
we might mention pharmacies, mills and bakeries, as
"normal regulators" of prices, ice plants, public bill
posting, drying rooms and store houses for corn, the
sale of grain, seeds, plants, vines and other arboreal
and fruit-bearing plants.

The same law has determined the manner in which
local governments may purchase concessions previously
granted to private interests. They must pay to the
owners an equitable indemnity, and account must be
taken (a) of the market value of the construction and
of the movable and immovable equipment; (b) of the
advances or subsidies made by the local government;
the registration taxes paid by the concessionaires ; and
the tax that the companies were able to pay to the
towns on excess business; (c) of the profit lost to the
concessionaires through the purchase, based on the
legal interest rate for the number of years which the
franchises have still to run, with annual sums equal to

19

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

the average profits of the five years last passed (not
including interest on capital).

The law of April 4, 1912, established a life insur-
ance monopoly.

The report of the Congress of the Federation of
Municipal Enterprises, held at Verona, May 21 and
22, 19 10, enumerates 74 special public enterprises, 31
of which were in existence before the law of 1903-
This would tend to prove that the law had not aided
greatly in their further development.

France has : i . Fiscal monopolies, such as matches,
tobacco and powder. 2. Postal system. 3. Govern-
ment railways, comprising the system bought before
the Western line; the Western railway; and the rail-
way from Saint Georges de Commiers to La Mure, in
the district of Isere, the operation of which constitutes
a distinct department aside from that of the other
government railways. Little is known concerning
this third system.

Other enterprises are : the National Printing Office ;
the official journal (Journal OfUciel) ; the manufac-
ture of metals and coins; the manufacture of Sevres
porcelain; the manufacture of Gobelin tapestry; the
manufacture of Beauvais tapestry; the water works
of Versailles and de Marly; stock farms; and the
baths of Aix-les-Bains.

The City of Paris has organized several commercial
ventures. In 1890 a municipal department of elec-
tricity was installed, which was abandoned in 1907.
The city has also taken full control, since June i, 1910,

20

GOVERNMENT AND MUNICIPAL TRADING OPERATIONS

of the Belleville cable railroad. In 1905 it municipal-
ized the undertaking service, and it operates a stone
quarry for the benefit of the city streets. These are
the only directly managed undertakings of the City of
Paris. A mistake was made in becoming a share-
holder in a gas company. In the case of water the city
has undertaken to construct and maintain pumping
stations and also mains, but it has granted to a private
company the right to construct branch pipe connec-
tions, to receive subscriptions and to collect rents.

The Municipal Council of Paris has leased its elec-
trical supply down to 1940 and also its transportation
facilities, both surface and underground.

Belgium owns and operates nearly all its railways.
It runs steamers from Ostend to Dover, and on the
canal from Anvers to the port of Flanders.

In Sweden the state owns and operates the rail-
ways.

In Austria, according to a work compiled under
the supervision of J. G. Griiber, by Doctor Rudolph
Riemer, secretary of the Central Bureau of Statistics,
outside of the customary monopolies the state controls
fiscal monopolies, such as tobacco, salt, powder, lot-
teries, railways, a national printing office, an official
journal, docks, stock farms, forests, and other public
lands and mines.

Municipalities which M. Schelle has not listed oper-
ate gas and electric plants, undertaking services, baths,
pawnshops, horticultural establishments, slaughter

21

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

houses, savings banks, theaters, docks, hydro-electric
works, race tracks, tramways, and daily newspapers.

In regard to Germany M. Schelle had received no
information concerning the German railways, nor the
fiscal mines of Prussia. The government operates
coal mines in upper Silesia, the districts of Deister and
Oberkirchen, in Westphalia, and in the district of
La Saar. These mines were employing 91,671 work-
ers in ipio.-'

The Prussian government also produces lignite,
amber, iron ore and other ores, both calcareous and
gypsum, potash, rock salt and refined salt, and oper-
ates blast furnaces and foundries of metals other than
iron. These various industries employ 12,759 work-
ers, which makes for the two classes enumerated a
total of 104,430 persons employed. The state also
operates the Prussian bank.^

3. The report does not take up the public under-
takings of the United Kingdom, or of the United
States. The results of the investigation made by The
National Civic Federation of America, for the pur-
pose of discovering whether the attempts at munici-
palization made in Great Britain ought to be imitated
in the United States, were published in 1907 (3 vol-
umes). However, the information given is most in-
complete.

In Great Britain the telephone was not taken over

^ See Circulaire du Comite des Houilleres, February 20, 1913.
' Arthur Raffalovich in Journal des Sconomistes, October, 1912.

22

GOVERNMENT AND MUNICIPAL TRADING OPERATIONS

by the state until 19 12. In the United States the
telegraph and telephone are still under private man-
agement.

The Postmaster-General of the United States, in his
report of 1912, recommended the annexation of the
telegraph service. But President Taft, in transmitting
the recommendation to Congress, declared that he by
no means favored the suggestion.^

However the President complimented the Post-
master-General with having brought about economy
in his department. But, as the Journal of Commerce
observed, to bring about economy in a government
department, and to ensure an economic administration
of a trading enterprise, are two very different things.

In the British Isles municipal enterprises have been
multiplied, following the Public Health Act of 1875,
which act granted to sanitary districts authority to
establish water and gas works, and the Municipal Cor-
porations Act of 1882, which codified the municipal
law. This latter act gives to municipalities the right
to spend their income ; but, in order to contract loans
and make purchases or sales of land, they must obtain
permission through the medium of private acts of
Parliament.

The industrial undertakings of British towns are
much less important than might be supposed from
the rhapsodies they inspire in government ownership
fanatics. In proof of this statement it is sufficient to
enumerate the industrial operations of the London
County Council.

' Journal of Commerce, New York, February 24, 1912.

23

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

4. The London County Council was established in
1888. From 1888 to 1894 and from 1898 to 1906 it
called itself progressive. Its progress consisted chiefly
in seizing, by right of its own authority, the greatest
possible number of public utilities. However, the
distribution of the London water supply is not con-
trolled by the Council, despite all its efforts to obtain
such control. The control of water was given by the
law of 1902 to the Metropolitan Water Board, com-
posed of 66 representatives of the various local
authorities comprised within the area of distribution,
which is not less than 537 square miles, or 5 times that
of London. The Board has the right to levy taxes,
and it has acquired, by private contract and without
opposition, the holdings of 8 companies for a total of
about £1,900,000 ($9,253,000). It has spent one
million and a half pounds sterling ($7,305,000) in
public works. In 1904 it furnished 81,823,000,000
gallons of water to 7,000,000 people, ot 32 gallons a
day per capita, 53 per cent, of which comes from
the Thames, 25 per cent, from the river Lea, and 22
per cent, from springs and wells.

The London docks were constructed by private
companies. In 1907 the government introduced a bill
to take over these enterprises from the companies,
which received an indemnity of £22,368,916
($108,936,000) from the Port of London. This lat-
ter corporation, presided over by Lord Devonport,
who showed himself so energetic in the strike of the
dock laborers, is composed of thirty members, ap-
pointed by the government, by the municipal authori-
ties and by individual merchants. The Port of Lon-

24

GOVERNMENT AND MUNICIPAL TRADING OPERATIONS

don is SO independent of the London County Council
that the latter refused to guarantee the loans that the
former was forced to contract in order to pay the
indemnity to the dock companies.

Neither does the London County Council furnish
gas to the inhabitants of London. The companies
manufacturing gas were organized by private capital.
In 1855 there were 20 of these, but by i860 the num-
ber had been reduced to 13. Subsequently there were
several mergers, which necessitated private bills. Thus
a way was opened for an intervention which estab-
lished a scale of dividends proportioned to the price of
gas. The dividend rate was fixed at 4 per cent. If
there is a decrease in the price of gas the dividend can
be increased is 5d (34 cents) for each penny of the de-
crease in price, which was then fixed at 3s 2d (76
cents) for 1,000 cubic feet of gas of 14 candle-power.
If there is an increase in the price the dividend is
diminished in the same proportion. London is lighted
by two gas companies. One company sells its gas at a
rate of 2s 7d (62 cents). The London County Coun-
cil has only the right of fixing the quality.

The Electric Lighting Act of 1882 provided that
local governments could purchase, at the end of 21
yeais, any electrical enterprise established within their
territories. The law of 1888 extended the purchase
period to the end of 42 years.

Several local governments of London have estab-
lished electrical service in a number of different
ways. In 16 out of 29 of the local districts
there are municipal plants, but they represent a
service over only 55J4 square miles, while the elec-

25

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

trical companies supply a surface of 64^^ square
miles. In greater London the municipal plants sup-
ply 167 square miles, and 19 companies 331 square
miles.

The London County Council, in 1907, planned to
create an electric central station supplying a district
of 451 square miles; but, when the "progressive ma-
jority" of the London County Council was replaced
by a "moderate majority," the plan was abandoned.
Later Parliament passed a bill, demanded by 8 out of
the 10 existing companies, permitting them to consoli-
date their systems. But the London County Council
will still have the right to buy them out, in 1931, or at
the end of any subsequent ten-year period.

In fact, the Council has exercised its authority ac-
tively only in the direction of operating tramways.
In 1870 the Tramway Act authorized a local govern-
ment, or any private company which had obtained its
consent, to ask for a private bill in order to establish
a line. The Metropolitan Board of Works of London
granted several companies authority to establish lines.
In 1894 the Council demanded the right to purchase
these. In 1898 it bought out two companies, one
of which possessed 43 miles of tramway lines in
the north of London. The Council left to the com-
pany the right of operation during 14 years.
In 1898 the operation of the other tramway lines was
begun. The Council bought up the lease of the other
companies in 1906. It has now 136 miles of tramway
lines, and its receipts are diminishing.

The London County Council likewise attempted to

26

GOVERNMENT AND MUNICIPAL TRADING OPERATIONS

operate, beginning with 1906, a line of boats on the
Thames. The first two years the undertaking resulted
in a deficit of £90,683 ($441,626). The service was
abandoned one or two years later. The 30 boats,
which had cost, in 1906, £7,000 each, were sold in a
lot for £18,204. The Council also took upon
itself the demolition and reconstruction of a cer-
tain number of cheap lodgings. Therefore, in the
way of actual municipal industrial services, it has
managed a boat line upon the Thames, demolished
and reconstructed cheap lodgings, and is now operat-
ing tramways.

The partisans of public operation say, none the less,
that, "in principle, municipal ownership has been ac-
cepted." Only those who are honest add "but public
opinion has confined it within very narrow limits."
Moreover, the elections of 191 2 have kept the progres-
sives in the minority.^

5. According to an article in the Fortnightly Re-
mew, of January, 1905, it is in Russia that local public
ownership and operation have been most widely ex-
tended. The sale of agricultural implements, medi-
cines, magic lanterns, translations of Moliere and Mil-
ton, the expurgated novels of Dostoiewski, sewing
machines and meat are among Russian public enter-
prises. It is said also that it is useless for cities to
demand subsidies from the government. The stock
answer of the administration to all requests for aid is :
Municipalize. This advice is easy and costs nothing.

' Claude W. MuUins, L'Activite Municipah de Londres, Revue
iconomique Internationale, 1910.

27

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

6. Ownership and operation on a national scale
have been most widely developed in New Zealand.
The constitution of 1852 gave to legislators of that
country all possible authority wfithout other restric-
tion than "to do nothing repugnant to the English
law." Nor are their powers limited, as in the United
States, by a supreme court.

New Zealand is isolated. It has no competitors. It
has large undeveloped resources. It has a territory
of 271,300 square kilometers (104,344 square miles),
or more than half that of France, and a population
of 1,044,000 people, or 4 inhabitants per square kilo-
meter ( 10 inhabitants per square mile) . Naturally the
experiments of a restricted population, distributed
over a vast area, have not the same importance as
those attempted by a population of several million in-
habitants concentrated within narrow boundaries.

In a work entitled State Socialism in New Zealand ^
Messrs. Le Rossignol and Stewart give us a complete
picture of the Socialist enterprises which have been
attempted there.

Most of the soil was originally government land. As
we shall see further on, the government has not re-
tained possession of it for the purpose of exploit-
ing it.

The real development of governmental activity is
chiefly due to the energy of one man. Sir Julius Vo-
gel. At his instance a government life insurance sys-
tem was established in 1869. In 1870 he outlined a

' State Socialism in New Zealand, by James Edward Le
Rossignol, Professor of Economics in the University of Denver,
and William Downie Stewart, Barrister at Law, Dunedin, New
Zealand, i volume in i2mo, George C. Harrop & Co., London.

28

GOVERNMENT AND MUNICIPAL TRADING OPERATIONS

vast policy of public works, calling for an expenditure,
in the course of lo years, of f 10,000,000 ($48,700,-
000), a sum which was actually doubled within that
period. In 1876 he abolished provincial boundary
lines, took over the land and the railways, and bur-
dened the state with a fully developed administrative
organization, the expenses of which were paid for by
taxation, and carried out only with the help of loans
and a heavy debt.

In 1879 New Zealand went through a crisis which
would have ruined her if she had not been saved by
the application of refrigeration to the transportation
of meat. Even with that help it took her 16 years
to recover.

I shall not speak here of the social legislation in-
troduced by William Pember Reeves, from 1890 to
1895, which has frequently been remodeled.

New Zealand has owned the telegraph since 1865 ;
the railways since 1876 ; the telephone since 1884.
National coal mining and accident insurance were
taken up in 1901, and fire insurance in 1903, at rates
which render any competition impossible. From time
to time the government has undertaken the operation
of small industries, such as the purchasing of patents
for the prussic acid process, a right to which the
state leases to miners for a certain fee. The man-
agement of the oyster beds of Auckland, the estab-
lishment of fish hatcheries, the stocking of the rivers
with trout, and the establishment of resorts for tour-
ists and invalids are also among New Zealand govern-
ment enterprises.

But, although New Zealand represents the maxi-

29

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

mum of effort in the way of Socialist enterprises,
few industries are directly managed by the govern-
ment.

"Scarcely a month passes," says Mr. Guy H. Schole-
field, "without some convention passing a cheerful reso-
lution demanding that the government should step in and
operate some new industry for the benefit of the public.
Now it is banking ; to-morrow bakeries ; over and over
again some moderate reformers have called upon the
government to become controllers of the liquor traffic;
once upon a time it was importuned to become a whole-
sale tobacco-seller ; more than once to purchase steamers
to fight the supposed monopoly of existing lines." ^

"But," say Le Rossignol and Stewart, "notwith-
standing these demands, the feeling seems to be
growing that the government should not move too
rapidly in the direction of State Socialism."

7. In nationalization of the soil New Zealand has
had an experience, the more interesting in that most
of the soil was once government land. Ought the
state to have conserved its interest in the land, or was
its action wise in transforming it into private prop-
erty ? The following facts regarding this question are
to be found in that remarkable work. State Socialism
in New Zealand, from which I have already quoted.

The Hon. William Rolleston, who became minister
of Public Lands in 1879, held that one-third of the
crown lands ought to be leased in perpetuity for a
rent of 5 per cent, of the value of land, with a revalu-

' New Zealand and Evolution, page 58,

30

GOVERNMENT AND MUNICIPAL TRADING OPERATIONS

ation every 21 years. The resulting resources might
be applied to education.

The Upper Chamber granted the right of purchase
at the value of the prairie land, or £1 per acre, after
any prospective property holder should have cultivated
one-fifth of his claim. Socialist legislation devel-
oped when the Liberal party, having acquired a
majority in the elections of December 5, 1890,
came into power on the strength of two issues,
agitation against the great property holders, and
agitation of workmen whose salaries had fallen
since 1879 ^"^ who, in the month of November, had
organized an unsuccessful strike.

John Ballance, head of the Cabinet in 1891, and
John McKenzie, minister of Public Lands, were ardent
partisans of government and property reform. To-
gether they put in force five acts, one after the other,
which have since undergone several modifications.
Ballance, also a partisan of nationalization of the
soil, was anxious that one-third of its lands should
remain under the control of the state, to be leased
by it, however, with periodic revaluation. His plan
fell through. McKenzie granted leases for 999 years
at a fixed rental of 4 per cent, on the capital value
of the land at the time the lease was taken up, with-
out revaluation. The area which could be held
by one man was limited to 640 acres for first-
class land, and 2,000 acres for second-class land.
The system received the name of "the eternal lease."
At this rate of lease, the government would lose more
by way of land tax than it got by way of rent.

But, at the end of 10 years, the perpetual tenants

31

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

began to ask for the right to buy the freehold of their
properties. The Labor party was constantly proposing
a revaluation of rents. In 1907 the right of purchase
was recognized, but under conditions of valuation
which provoked the strongest resentment. The ten-
ants maintained that the state's interest in the land
was only the capitalized rental of 4 per cent, on the
original value of the land.

The lease in perpetuity was abolished by the Act
of 1907. However, under this system of leasing,
which had been in force for 15 years, over two
million acres of the best land in the colony had
been parted with. In the place of the "eternal
lease" was enacted the "renewable lease," a lease for
66 years, with provision for valuation and renewal at
the end of the term with reappraised rent. But the
public lands can always be sold immediately on the
occupation-with-right-of-purchase system. It is there-
fore a mistake to believe that the government of New
Zealand owns all its soil.

On March 21, 1906, the total area of 66,861,440
acres was held roughly as follows :

Freehold 18,500,000

Leased from Crown 17,000,000

Held by natives 8,250,000

Reserved for educational purposes and national

parks 12,250,000

Unfit for use 7,000,000

Not yet dealt with 3,300,000

It is estimated that 63 per cent, of New Zealand
families own property of fioo and above; and it is
probable that 75 per cent, of the families own some

32

GOVERNMENT AND MUNICIPAL TRADING OPERATION'S

kind of property. A number of small properties are
exempt from taxation. Those who are without prop-
erty are young people earning large salaries who, with
health and a fair chance, will achieve a good position
in life.

The land laws have not only increased the number
of proprietors, but, although they have had a Socialist
aim, they have actually brought about anti-socialist
results, since they serve to encourage the system of
private ownership.

The Labor party advocates nationalization of the
soil; but the tenants, supported by the freeholders,
continue to demand the right of transforming their
leases into property holdings. At a crisis they would
insist upon a lowering of the rent. One witness, in
1905, made this profound observation before the
Land Commission:

"I believe in the freehold because, in times of trouble,
the freeholder is the man to whom the state will look;
and the leaseholder is the man who, in times of trouble,
will look to the state."

Messrs. Le Rossignol and Stewart, the authors of
State Socialism in New Zealand, conclude:

"It is not easy to show that New Zealand has derived
any benefit that could not have been obtained from free-
hold tenure combined with taxation of land values."

Conclusions

8. Except in the United States the telegraph
and telephone systems are nationally owned and op-

33

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

erated. The coining of money is also a function of
governments. The railways are government owned,
either wholly or in part, in France, Germany, Aus-
tria-Hungary, Italy, Denmark, Sweden, and Belgium,
but the extent of the private systems is greater than
that of government lines.

Industrial operation by governments and munici-
palities is still very limited in scope. Nevertheless,
it is already sufficiently widespread to make a con-
clusion possible as to whether the dreams of its ad-
vocates are being materialized, or their promises ful-
filled.

34

BOOK II

FINANCIAL RESULTS OP GOVERN-
MENT AND MUNICIPAL
OWNERSHIP

CHAPTER I

BOOKKEEPING IN STATE AND MUNICIPAL TRADING
ENTERPRISES

1. Report of Gustave Schelle to the International Statisti-

cal Institute. — Denmark.

2. Receipts and Expenses of Public Operation in France;

Costs of Construction. — Receipts and Expenses Out-
side of the Budget. — Special Accounts. — Capital
Charges.

3. British Municipalities. — Belgium. — Sweden. — City of

Paris.

4. Austria.

5. Conclusions. — Attempts to Organize Special Accounts

for Government and Municipal Trading Enterprises
Have Failed. They Are Incompatible with a Homo-
geneous Budget. Sane Budget Regulations and Public
Operation of Trading Enterprises Are Contradictions in
terms.

I. I have already quoted from the report to the
International Statistical Institute, compiled by Gus-
tave Schelle, former minister of Public Works, where-

35

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

in he discusses the financial situation of the vari-
ous state and municipal trading enterprises, from
which he has received reports, with all the authority
of his official position, and with a mind which has
remained both alert and independent throughout his
administrative career. The difficulties in the way of
estimating and comparing the value of such enter-
prises are very great.

In Denmark, for example, railway outlays for pen-
sions and general administration and inspection costs
are borne by the railroads themselves. For other
enterprises such costs are met by the general budget.

Before 1904 and 1905 the postoffice and the tele-
graph yielded no net proceeds. In 1908- 1909 this
was also true of the mint.

No report is made regarding the interest charges
upon loans for the establishment of such enterprises.

In 1908-1909 the results of municipal operation of
gas, electricity and water were as follows :

Copenhagen

Plants Capital, Net Proceeds,

Crowns Crowns

Gas 4 30,636,000 3,247,000

Electricity 5 14,451,000 3,490,000

Water 6 12,392,000 632,000

Provincial Cities

Gas 57 13,144,000 1,640,000

Electricity 17 4,727,000 450,000

Water 50 10,873,000 839,000

In Holland, according to information furnished by
M. Methorst, director-in-chief of the Central Bureau
of Statistics, the cost of constructing the postoffice,
telegraph and telephone systems amounted, on Janu-

36 •

BOOKKEEPING IN STATE AND MUNICIPAL ENTERPRISES

ary ii, 1909, to 24,854,000 florins ($9,941,000).
This capital bears an interest charge in favor of the
public treasury of 3}^ per cent., for the systems were
established by means of public funds. Repayments
are made periodically at a rate varying from i to
I2j^ per cent. The enterprise has a special double
entry system, and no account is taken, in reckoning
up receipts, of either free railroad transportation or
official correspondence.

The funds for the operation of the Wilhelmina and
Emma mines are supplied by the budget.

No information is given in the report concerning
the financial results of municipal enterprises in Italy.

2. I quote literally the observations of M. Schelle
concerning France:

A. Receipts and Expenses of Operation:

"In the case of the mints, the National Printing Office
and the state railroads, the receipts and expenses of op-
eration are placed opposite each other in budgets an-
nexed to the general budget, and the difference in gain
or loss is indicated only in this latter budget. The rec-
ords of expenditures, however, as well as of receipts, are
incomplete.

"In the case of the fiscal monopolies, the postal service
and the official journal, the receipts of operation are in-
cluded in the general receipts of the general budget, while
the expenses are charged to the department under whose
jurisdiction the enterprise may happen to be, without
any comparison being made between receipts and expen-
ditures.

37 '

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

"As for the other and less important industrial enter-
prises, the provisions of the general budget furnish no in-
dication whatever of their condition. Tentative receipts
are mixed with the receipts of other enterprises under
different headings.

"Sometimes the expenses are deducted from the gross
receipts, and the net proceeds alone figure in the budget ;
sometimes they are included in the expenditures of the
department concerned, now and then without being in
evidence. Information on the subject of these enter-
prises is impossible except in the final accounts."

B. Costs of Construction:

"The costs of construction, in the case of certain enter-
prises, are so mixed in the accounts with other expenses
as to make it utterly impossible to disentangle them.
Even where enterprises have been made the subject mat-
ter of the budgets called annexes, the budget documents
and the final accounts for each year indicate only the
increase in the expenses to be incurred during the year
under consideration, without regard to the expenses of
former years. In order to get at the amount of capital
employed, it is necessary to examine the final accounts of
all the years. The resulting labor sometimes recalls that
of the Benedictines, and, moreover, is far from always
yielding satisfactory results, whether by reason of the
antiquity of the expenses or the impossibility of disen-
tangling them."

C. Receipts and Expenses Outside of the Budget:

"Government undertakings keep no daily record of the
requisitions made on them by other departments, so
that important financial transactions do not appear.

"Certain utilities profit gratuitously from services ren-

38

BOOKKEEPING IN STATE AND MUNICIPAL ENTERPRISES

dered them by other public or quasi-public enterprises;
thus the postal and telegraph departments pay the rail-
roads for but a small share of the services which they
receive from them.

"Public enterprises do not pay rent for the use of
government property, for the real estate they occupy,
nor are they charged with the materials they use. On
the other hand, the National Printing Office includes
among its receipts, at a rate which is generally considered
high, the amount of work which it does for other depart-
ments. It does not include among its expenses, however,
the interest on the capital sunk in the buildings in which
it is installed.

"The postal and telegraph facilities granted to minis-
ters and various public departments do not figure among
the receipts of the postal enterprises.

"Finally, among the annual expenses of the post and
telegraph offices are included the subsidies paid to packet
boats prompted, at least in part, by considerations alto-
gether foreign to the mail service."

D. Special Accounts:

"When an enterprise possesses a technical equipment
or a stock of merchandise, no document ever shows the
true value of such equipment.

"Exceptions to the above are the special accounts
published at the close of each fiscal year: ist, in the
match and tobacco monopolies; 2d, in the case of the
state railroads. However the value assigned in these spe-
cial accounts to stock and equipment is not a commercial
value. It is a simple difference between the expenses of
purchase and manufacture and the proceeds of actual
sales.

"Moreover, the fixed capital, buildings, real estate, etc.,

39

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

of the enterprises enter into these accounts in the same
manner as the stock of manufactured products, so that
it is impossible to get at the capital really involved.

"Finally, the amount realized from sales of real es-
tate, when there are any, is not deducted from the capi-
tal, such sales being made by the Government Lands De-
partment.

"The accounts of the Government Railroad Depart-
ment published each year are no more satisfying. State-
ments as to the costs of construction are to be found
among them, but these include only those expenses con-
tracted directly by the department, and no mention is
made of the very considerable expenditures which are
covered by the budget of the ministry of Public Works.

"The Statistique des Chemins de Fer is the only docu-
ment which gives an approximate idea of the actual costs
of construction of the state railroads and that of the
small line of Saint Georges de Commiers a La Mure."

E. Capital Charges:

"It is not sufficient to know the amount of actual capi-
tal invested in an industrial enterprise in order to be able
to form a correct judgment as to its management. It
is also necessary to be informed as to the capital charges.
Exact computation is impossible unless the expenses
relative to each enterprise have been covered by
special loans. We must be content, therefore, with an
approximation difficult to make at this late day, because
no care has been taken to make such an estimate each
year since the enterprises were established. In order to
make any progress, it would be necessary to estimate
the applicable rates based on the price of government
bonds or of bonds guaranteed by the government at the
time when the various construction expenses \vere iii-

40

BOOKKEEPING IN STATE AND MUNICIPAL ENTERPRISES

curred. Expenses for building materials, etc., and for
the installation and equipment of the various government
enterprises have been a burden upon the Treasury since
that date. This is evident in the case of the costs of con-
struction defrayed with funds from loans not yet paid
off. But it is true also of expenses paid for in this or
that year out of the ordinary resources of the budget.
These expenses may not be considered as paid oif while
a perpetual public debt exists, even though resources are
at hand which might have been employed toward their
extinction."

3. The municipalization of public utilities has con-
siderably increased the expenses and debts of British
local governments. M. Schelle declares, however,
that he has been unable to obtain the data necessary
to a compilation of statistics as accurate in character
as the purposes of the International Institute would
naturally require.

A portion of his report is devoted to the financial
condition of the Belgian state railroad, of which we
will speak later in detail.

In Sweden the principal state operations are the
postal, telegraph and telephone services and the gov-
ernment railways. The receipts from the railways
represent 1.30 per cent, of the average annual capital.

The City of Paris municipalized the service of
burying the dead in 1905. In 1906 the receipts were
5,242,000 francs ($995,980), while the labor and
equipment expenses were respectively 2,500,000 francs
($475,000) and 2,135,000 francs ($405,650), or a
total of 4,635,000 francs ($880,650).

In 1910 the receipts were 4,660,000 francs (^885,-

41

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

400). The labor expenses had risen to 2,760,000
francs ($524,400) while those for equipment had been
reduced to 1,765,000 francs ($335,350). At the same
time there was an outstanding loan of 348,000 francs
($66,120)— a total expense of 4,873,000 francs
($925,870).

In the case of the quarry operated by the City of
Paris the results are still more unsatisfactory, accord-
ing to a report to the Municipal Council in 1908. The
labor expenses are very much higher than in neigh-
boring quarries.

4. An important part of the report is devoted to
Austria, and is based upon a previous report drawn up
under the direction of J. G. Griiber, by Dr. Rudolph
Riemer, secretary of the Central Bureau of Statistics.

Outside the usual monopolies the Austrian govern-
ment owns docks and mines and operates lotteries.

In most of these enterprises the costs of construc-
tion and of equipment are indicated separately in the
final accounting, but only those expenditures made
during any one year are to be found there, regardless
of those of the preceding years. The items for deter-
mining how much of the original debt has been paid
off are lacking. Interest and sinking fund charges on
loans contracted in view of government operation
do not figure in the final accounting in the chapter
especially devoted to the particular industry con-
cerned, but in a chapter issued by the ministry of
Finance under the heading, Public Debt and Adminis-
tration of the Public Debt. Special information in
regard to the auditing of the public debt may be

42

BOOKKEEPING IN STATE AND MUNICIPAL ENTERPRISES

found in the annual report of the special committee
(Commission de Controle) managing the debt. But
in this report the information touching interest and
sinking fund charges does not inform us as to the
actual application of the loan.

The same conditions prevail in the case of the pub-
lic debt contracted for the benefit of the railroads.
Our information covers only interest and sinking
fund charges on the amortizable debt. But even that
portion of the debt does not represent all the loans
contracted for the benefit of the railroads.

According to the Statistique des Finances de la
Haute-Autriche et de Salzburg (8th annual report)
the expenses of all the towns of Upper Austria aris-
ing from the operation of their utilities amount to
4.44 per cent, of all their expenses. The costs of con-
struction are quoted en bloc in a special chapter.

The result of M. Schelle's investigation proves that
almost everywhere the data necessary in order to de-
termine exactly the profits or losses upon state or
municipal industrial operations are insufficient.

"Whatever be the end in view when states or munici-
palities organize industrial enterprises — whether the ob-
ject be fiscal or economic, for the sake of the consumer or
even in the exclusive interest of employees — it is indis-
pensable to know whether these enterprises are actually
resulting in profits or losses, and the amount of each.

"As far as the essential functions of the state are con-
cerned, such as providing for public safety, public high-
ways, etc., the establishment of special accounts would be
impossible and without much value, inasmuch as these

43

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

services provide no opportunity for direct payment on
the part of consumers. Such services derive no re-
ceipts, properly so-called, nor can they be abolished.
When it is expedient to know whether the management
of these activities is not too extravagant, it is necessary
to proceed by contrasting one year with another, or by
comparing certain items of expense with similar items
in other countries, or in other localities.

"Public industrial enterprises are almost never essen-
tial, since they may be intrusted to private operation.
They resemble private enterprises and provide oppor-
tunity for special receipts. It should, therefore, be pos-
sible to furnish to the taxpayers, in whatever concerns
them, means of knowing the amount of income, just as
opportunities for such information are afforded to the
stockholders or creditors of any private concern. To pre-
tend that the financial side of state or municipal enter-
prises should be neglected because such undertakings are
created for the public interest is only an effort to side-
track possible criticism. Public management, like any
other, can be good or bad. If it is directed toward se-
curing advantages, justly or unjustly, to this or that class
of people, whether consumers or employees, it is at least
necessary that those who are to foot the bills, that is to
say, taxpayers, should know, personally or through their
representatives, whether the contributions demanded are
not exorbitant. Such a requirement should not be ques-
tioned in any country.

"From another point of view, how can the preten-
tion be sustained that, in certain cases, the state or munic-
ipality can serve the public to better advantage than
private companies when such states or municipalities do
not furnish the public with adequate information con-
cerning their administration.

44

bookkeeping in state and municipal enterprises

Conclusions

5. "In fact," concludes M. Schelle, "the efforts
made to organise special accounts for state and mu-
nicipal industrial enterprises have failed. Public
documents sometimes furnish precise enough infor-
mation as to receipts or expenses of operation, but it
is nearly always difficult to discover the amount of the
costs of construction, and it is impossible to get any
adequate idea of capital charges, interest and amor-
tization." His observations, in regard to Denmark,
Holland, France, and Austria, prove that in no respect
do the accounts ever bring out the real gains or losses
of state enterprises.

The difficulties encountered arise from the fact that
a state or a municipality cannot have more than one
budget. Moreover all the receipts should be entered
on one side, all the expenses on the other. In this re-
spect at least public organizations should be managed
like private corporations. If these latter fail their
creditors demand the amount of their claims at so
many cents on the dollar. A well-organised state
should have only one purse, nor should any distinction
be made between its various loans. All should be
secured upon one single guaranty — its credit.

Without a unified budget sound finance is out of
the question. A special account for a state or munici-
pal industrial enterprise can have only a fictitious
value.

In other words, sane budget regulations and public
management of trading enterprises are contradictions
in terms,

45

CHAPTER II
THE BELGIAN STATE RAILROADS

1. Accounts. — Capital Charges. — Rates of Issue. — Review of

Receipts and Expenditures. — Final Profits Do Not
Contribute toward Balancing the Budget. — The Budget
Has Obtained No Advantage from State Operation of
Railroads.

2. Passengers and Shippers. — Increase of the Rate on Pit

Coal.^Resolution of November 29, 1911. — Plan of M.
Hubert.

I. Railroads are the most important industrial en-
terprises undertaken by a state. What, then, are the
financial results of their public operation?

The Belgian state railway was established by the
organic law of June i, 1834. By reason of the length
of time it has been in operation it has a right of
precedence.

.' Marcel Peschaud has published in the May and June
numbers of the Revue Politique et Parlementaire a
remarkable study of the Belgian railways, but his
analysis would lead us too far astray. I must con-
fine myself, therefore, to a resume of what M. Schelle
has to say on the subject in his report to the Inter-
national Statistical Institute.

The law of 1834 provided that a complete account
of the operations of the railways be presented to the

46

THE BELGIAN STATE RAILROADS

Chambers annually, by which account are understood
the receipts and expenditures, together with the use
of the funds for the construction of lines placed at the
disposal of the new department. The accounts thus
rendered soon proved to be altogether inadequate.

In 1845 estimates of interest and sinking fund
charges were added to the previous requirements.
Controversies arose over these estimates, and it be-
came necessary to change the system several times in
order to settle the rate question. At the close of 1878
it was decided that the management of the railroads
should make up a balance sheet in the form of com-
mercial balance sheets. This was done, but capital
charges were computed at a uniform rate based on a
period of retirement of ninety years.

Moreover, according to M. Nicolai (Government
Railways of Belgium, 1885) the cost of replacements
and reconstructions was charged to the construction
accounts without deductions for renewals and repairs.
On the other hand, the annual payments for the pur-
chase of lines which should have been charged to
construction were charged to operation.

"Never," says the minister of Public Works {Report
for the year ipo^), "have the railway accounts, that is
to say, the accounts prescribed by law, been found other
than defective. On the contrary, the statements of con-
ditions, the statistics, the estimates and reports, relating
in part to such items as interest, sinking funds, pensions,
etc. (which are not within the legal powers of the rail-
road department to pass Upon), have never ceased to
be the subject of the most lively discussions. Charges
have been made in turn, or sometimes simultaneously, that

47

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

the profits were swelled and concealed, that there was too
much red tape, even to the point of disregarding the es-
sential rules of a business enterprise, or that there was
not enough control, because the accounts were separate
from those of the Treasury. The subject has furnished
an inexhaustible theme of argument."

Of late years it has been decided that the data con-
tained in the annual reports ought to be kept with the
Treasury accounts, and that the balance sheets should
be made up between the department of Public Works
and that of Finance. The accounts for 1905 and the
years following have been established upon this new
basis.

As for capital charges met by enlarging the public
debt, a rate of issue was adopted, which varied
from 4.90 per cent, to 3. 11 per cent. Then the gov-
ernment proceeded to publish, under the title of
"annexes" to the financial report: i". A general
balance sheet for the year ending December 31,
showing on the credit side construction costs since
the beginning of the undertaking and the gross
operating receipts and on the debit side the cap-
ital already retired and remaining to be retired,
the amount of charges upon this capital, the dues and
rents paid by the state railway system to other rail-
road enterprises, operating expenses and the profit
and loss balance. 2". A separate account of operating
receipts and expenditures for the preceding year.
3". A provisional account of operations for the cur-
rent year, and of profit and loss, comprising, on the
one hand, operating expenses, pensions charged to the

48

tHE BELGIAN STATE RAILROADS

general budget, fixed charges, including yearly in-
stallments, and the portion of receipts due to com-
panies whose lines are operated by the government;
and, on the other hand, the profits of operation, prop-
erly so-called, together with various other profits.
4". A table recapitulating the financial results since
the establishment of the system (1835) setting forth
the annual balances in profits or in losses. 5". A table
of interest and sinking fund charges from the be-
ginning. Finally, tables of operating statistics.

As a result of the new system adopted the profit
shown in a large number of the previous reports was
transformed into a deficit.

The report for the year 1909 gives the following
results, computed in francs :

Installation Costs

Francs

Lines constructed by the state 675,655,000

Lines constructed by contract 176,317,000

Lines purchased and completed 978,017,000

Completion of lines operated under rentals 10,293,000

Station structures 72,928,000

Surveys 18,547,000

Equipment 719,188,000

Total 2,650,945,000

Of which amount there has been retired by sinking
fund charges 350,105,000

Difference 2,300,840,000

The difference was made up :

By the funded debt 1,959,917,000

By annual appropriations for purchase 340,024,000

Total 2,299,941,000

49

WHERE AISTD WHY PUBLIC OWNERSHIP HAS FAILED

Interest and sinking fund charges were computed,
for 1908, at 94,015,000 francs and, for 1909, at 97,-

020,000 francs.

1908 1909

Total receipts 269,362,000 281,532,000

Total expenses 182,391,000 190,540,000

86,971,000 90,992,000

Deduct interest and sinking fund
charges 94,015,000 97,020,000

Deficit 7,044,000 6,028,000

"To sum up," concludes M. Schelle, "if, from the
very beginning, we compare the positive with the nega-
tive balance of each year, and add the sum, we find
in 1908 a final net profit of 30,966,000 francs and in
1909 one of 24,938,000 francs."

The maximum net gains were 44,975,000 francs
in 1910, and the maximum net losses 73,998,000
francs in 1886. During many years the summaries
which now show deficits would have shown profits in
the years previous to 1885.

The fancy that the state budget can ever be repaid
for its outlay through the profits of the railroads no
longer exists in Belgium.

M. Helleputte, minister of Railways, says in his
preliminary note to the operating report of 1908:

"The operation of Belgian railways has undergone
various fortunes. Since 1835 — 74 years — the balance
has shown a deficit 36 times and 38 times a profit. Since
the beginning of these operations the total profits exceed
the total deficits only by the small sum of 31,274,000

50

THE BELGIAN STATE RAILROADS

francs, or an annual average of 422,600 francs for an
average active capital of 778,733,000 francs, or .05 per
cent., all of which amounts to saying that, up to the
present day, the railroad has operated at cost."

The report goes on :

' "If we take into consideration the accumulated inter-
est upon the deficits, the amount of which had to be bor-
rowed from the Treasury, and, if we deduct the debit
balances, the apparent surplus gives place to a deficit of
86,836,000 francs, or an average annual loss of 1,173,000
francs — o.ii per cent, of the average working capital."^

During the great convention of Belgian manufac-
turers and merchants, on November 29, 191 1, M.
Cannon-Legrand said : ^

"The Belgian government acknowledged a loss of 6,-
965,000 francs in 1907, more than 7 millions in 1908,
and 6 millions in 1909. In 1910 we were promised a
profit of 4,500,000 francs, which has now dropped to
2,790,000 francs.

"On the other hand, the capital investment has
reached 2,731,000,000 francs, showing an average in-
crease for the last three years of 50,000 francs per
kilometer for the whole system (4,329 kilometers— 2,706
miles).

"Thus, during the year 1910, the capital invested by
the government in its railways realized exactly o.io per
cent. This was an absolutely exceptional year, both in

^ Revue Generale des Chemins de Fer, November, 191 1, page
352.

^ Bulletin du Comite Central du Travail Industriel, December

IS, 1911-

51

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

volume of traffic and in freight and passenger receipts.
It brought into the coflfers of the railroads 27,725,000
francs more than in 1909, in which year the system had
earned approximately 12,230,000 francs more than in
1908."

We are thus justified in concluding that the budget
of the Belgian government has derived no advantage
from the operation of railways.

2. But does not such operation redound greatly
to the advantage oi travelers and shippers?

The partisans of ownership and operation of rail-
roads by the state are constantly harping upon the
cheap rates of state railways, as opposed to the high
rates established by private companies.

By an order issued on the 25th of October, 191 1,
the minister of the Belgian Railway department raised
the rates on pit coal on the strength of a law of 19 10,
which, in its turn, found support in another law,
passed April 12, 1835, which says:

"Temporarily, and while waiting for experience to
guide to a final adjustment of the rates to be levied by
the aforesaid road, in conformity with Article 5 of the
law of May i, 1834, these rates shall be regulated by a
royal decree."

Now, Article 5, of the law of May i, 1834, under
which the Belgian system was established, reads :
"The profits of the road accrue from the rates which
are to be regulated annually by law." Thus, the law
of 1835 is only a temporary expedient, which must be

52

THE BELGIAN STATE RAILROADS

renewed at certain dates. Although this experiment
has lasted since 1835, the ministry considered that it
needed a new lease of life.

Freight rates for pit coal were increased from i to
2 centimes per ton kilometer by tariff No. 61, which
replaced tariff No. 31. The convention of Belgian
manufacturers, on November 29, 191 1, entered a pro-
test against this increase in a series of resolutions from
which we quote the following:

"The state is managing its railway lines from the sole
point of view of making them serve as purveyors to its
insufficient resources. It is operating in defiance of rules
essential to the prosperity of all commercial enterprise,
without any rational accounts of such a nature as will
tend to keep it fully informed as to net cost."

In view of this resolution, toward the close of 191 1,
the conclusions in the 1907 report of M. Hubert, com-
mittee reporter of the railway budget for the third
time, are evidently as true to-day as they were then :

\ "The management of the Belgian state railways has
committed itself to a policy of political expediency which
is sacrificing the general interest to interests purely local
and electoral."

"The personnel is too large, ill paid, unwisely selected,
and works overtime."

"Passenger service is both lacking in comfort and very
slow."

"From the standpoint of rates, passenger service is
favored at the expense of the shippers. The department
repudiates all responsibility for the acts of its employees
or the failure of its equipment."

S3

Where and why public ownership has failed

"Far from trying to meet its patrons half way, the
Railroad department maintains rates which are purely
arbitrary, and shows itself violently opposed to any pos-
sible competition."

Finally, as spokesman of the Central Railway
Division, M. Hubert concludes :

"It will become necessary to do what has been done in
Holland, — viz., lease the railways, with conditions at-
tached to the lease safeguarding the rights of employees
and the interests of passengers. And it is certain that
private enterprise would derive far better results from
our immense railway resources than the government has
been able to do. It is advisable that this outcome be seri-
ously considered, since future possibilities indicate that
such a course is unavoidable, if expenses continue to
increase at the same rate."

Yet French engineers are unanimous in praise of
the skill with which the Belgian lines are managed by
the minister of Railroads and his distinguished co-
workers.

54

CHAPTER III

PRUSSIAN RAILROADS

1. Governmental Distrust of the Railroads. — Obstacle En-

countered by Bismarck in His Attempt to Organize an
Imperial System. — Government Railroads. — The Real-
ity of Prussian Railroad Profits.

2. Railways and Waterways. — Diverting Traffic. — Prussian

Railways. — Discrimination Against the Rhine and Rot-
terdam. — Contradictions.

3. Prussian Railway Rates. — Political Methods of Concilia-

tion.— Berlin's Milk Supply.— The Ticket Tax.— Rate
Increase. — Baggage Rates. — German and British Rail-
ways. — Express Train Delays.— Rate Discrimination
the Rule. — Comparison of Rates. — Lack of Responsi-
bility. — Insurance. — Arguments in Favor of Prussian
Railways. — Complaints and the Ministerial Reply. —
Claims for Damages.— Operating Ratio.— Employees of
Prussian Railroads.

I. In Germany, as everywhere else, the railroads
inspired mistrust in the various state governments.
There, also as everywhere else, the credit for their
initial construction belongs to individuals. Up to 1843
the railroads received no subsidy whatever from any
of the federal states. General state aid was withheld
until about 1845, when a policy of government rail-
ways was introduced. In 1850 a number of states
took over certain lines which were struggling under
pecuniary embarrassment.

55

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

In 1874, amid an utter confusion of state and pri-
vate roads, Bismarck conceived the idea of organizing
an imperial system, of which the hnes of Alsace-Lor-
raine, which had been already declared imperial, were
to form the point of departure. In the desire, how-
ever, to prevent such a system of national railway
lines, the southern states hastened to buy up the inde-
pendent lines within their borders.

Bismarck then proceeded to concentrate all his
efforts upon nationalizing the Prussian railways,
trampling the private companies, which at that time
possessed 44.5 per cent, of the system, unscrupulously
under foot. As a result, there are to-day in Germany
independent railways, state lines and lines belonging
jointly to two or more states. The only imperial lines
are those of Alsace-Lorraine. Private companies now
possess only lines of secondary importance.

Bismarck had all sorts of reasons for acquiring
the railways of Prussia. For example, he hoped to
render himself more independent of the Prussian
Diet it he had the railroad receipts at his disposal.
The government had already begun a military line,
but was encountering political difficulties in complet-
ing it. Bismarck's proposed state system was one way
of putting an end to opposition of precisely this char-
acter. Finally, railway rates are an excellent protec-
tionist instrument, actually serving the German gov-
ernment in that capacity. Rates are raised on impor-
tations and lowered on exportations.

It has been asserted frequently that the orofits on
Prussian railroads have been as follows:

56

PRUSSIAN RAILROADS

1882 S.22%

1885 4.88%

1890 9.26%

1891 6.75%

1900 6.87%

190S 713%

1908 4.78%

1909 5-94%

The lowest percentage was 4.68 per cent, in 1883,
but the operating expenses included no capital charges
on the railway debt. If interest at 3 per cent, were
included, and, if a small sum for a sinking fund were
added, the profits would fall, for the period 1881-1895,
to 2 per cent., and for 1897-1906 to 3.75 per cent.
German government railways are exempt from all
general taxation and are taxed locally only to the
amount of 1,100 francs per mile, whereas, in Great
Britain, the local taxation is more than 5,250 francs
per mile.

The cost of construction of German railways has
not been very heavy. The north of Germany is en-
tirely flat. Not a single tunnel is to be found there.
The cost per mile in 1907 was about 277,121 marks,
while the average cost in Europe was 336,000 marks.

2. It is customary to speak very glibly in France
of the harmony existing in Germany between railways
and waterways.

An article which appeared in the Revue des Deux
Mondes, in 1902, entitled Les Votes Navigables de
I'Allemagne, by Alfred Mange, and two articles en-
titled Le Rhin Allemand, published by Paul Leon, in
the Revue de Paris, on the first and fifteenth of Feb-

57

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

ruary, 1903, show that the facts completely contradict
these assertions.

In the first place, in Germany, even more than in
France, both the railway lines and the waterways
follow a north and south course. It is not alone from
this point of view, however, that traffic disputes may
arise. Nearly every one of these rivers crosses several
states whose interests are frequently diametrically
opposed. The lower Rhine competes with the Prus-
sian railways; but the railways of Baden, of the
Palatinate, and of Alsace, says M. Mange, favor navi-
gation on the upper Rhine by greatly reduced rates of
transshipment and transit, in order that shipping may
be diverted from the Prussian lines. The same condi-
tion of affairs exists in the case of the Elbe. In its
lower course it competes with the Prussian lines, and
in its upper course it is favored by the railways of
Bohemia.

When railways thus favor ports of transshipment,
they are not moved by an altruistic sympathy for the
ship companies, but entirely by their conception of
their own interests. The government railways of
Prussia have established rates to fight such private
companies as still manage to exist. When the Rhine
was navigable only as far as Mannheim, the Baden
government established there a port of transshipment,
opened in 1875, for the purpose of diverting, in its
own interest, Prussian and Alsatian traffic toward
Switzerland. The Bavarian government made use of
the Main to bring its railroads into connection with
the ports of the North Sea, and to avoid making use
of Prussian railways. The ports of Riesa and Dres-

58

PRUSSIAN RAILROADS

den were established at the expense of the railroads
of Saxony, that of Aussig at the expense of the rail-
road from Aussig to Teplitz; that of Tetschen and
Lauda at the expense of the Austrian North West
railroad ; in each and every case to divert trafi&c from
Prussian railroads.

M. Leon has outlined the complicated struggle of
the Prussian railroads against the navigation of the
Rhine. The differential tariffs established in 1863 are
still employed by the state, and not tacitly, but openly.
A circular, on the 30th of October, 1884, established
the theory. The end in view, it says, is to "facilitate
the importation of first-class material and the expor-
tation of the products of national industry, as well as
to protect the commerce of German ports against the
ports of Holland." In order to divert from Rotter-
dam products of the iron and steel industry the gov-
ernment does not hesitate even to be incoherent.

"The Prussian railway," says M. Leon, has not
contented itself with opening the Westphalian mar-
kets to its maritime ports by rate reductions, but it
has closed them to Rhenish ports by raising the trans-
shipment rates upon those lines which lead to them.

In order to divert from Rotterdam to Bremen the
cottons destined for Derendorf, 6 kilometers from
Dtisseldorf> the railway charges 10 marks 50, or 17
pfennigs per ton kilometer. To divert the iron of
Westphalia from Rotterdam a ten-ton load pays from
Hagen to Hamburg, a distance of 388 kilometers, 72
marks, or 1.8 pfennigs per ton kilometer. From
Hagen to Diisseldorf, or 59 kilometers, the railway

59

Where and why public ownership has failed

charge is 31 marks 50, or 5,3 pfennigs, per ton kilo-
meter.

Is patriotism the sole motive which drives the Prus-
sian railroads to struggle in this way against the navi-
gation of the Rhine? "Xhen why do they weaken the
efiFect of such an argument by favoring importation
into Holland if use is made of their cars? From
Rotterdam to Bochum, 23 kilometers, a car of 10 tons
pays 35 marks, or 1.5 pfennigs, per ton kilometer.
By way of the Rhine only 13 marks is paid as far as
Ruhrort, or .8 pfenning per ton kilometer, but for
the 35 kilometers from Ruhrort to Bochum the rail-
road charges 16 marks 50, or 4.7 pfennigs, per ton
kilometer.

The Prussian railways favor navigation on the
Holland canals for the transportation of the coal that
they deliver to the frontier. At the same time, in
order to put obstacles in the way of mixed transporta-
tion, partly by rail and partly by water, as well as for
the purpose of deflecting traffic from Baden railways,
they grant to Mainz and to Frankfort transshipping
rates that they refuse to Ruhrort or to Diisseldorf.
Then there are mineral rates for Bavaria, iron and
steel rates for Switzerland, petroleum rates for Wiirt-
temberg, sulphur rates for Niiremburg, etc.

The exceptional tariffs of the Prussian system af-
fect 63 per cent, of the total kilometric tonnage and
46 per cent, of the total receipts of the Prussian state.
Their average rate is 2.6 pfennigs, instead of 5. 11
pfennigs, the regular tariff figure.

The chambers of commerce of the Rhenish cities
protested against such discrimination, and the cham-

60

PRUSSIAN RAILROADS

ber of commerce of Duisburg scored the policy of the
Prussian railways in the following terms:

"We admit that every group pursues with energy the
defense of its own interests; we do not admit that such
a policy may hide behind the fig-leaf of national in-
terest."

Such, when examined in detail, are the facts which
utterly contradict the legend of harmony between
the Prussian state railways and the waterways.

3. In the Journal of Political Economy, of Chi-
cago, Hugo Meyer has cited a fact which shows how
accommodating it is possible for a government rail-
road to be. The rate upon milk had been so estab-
lished as to prevent any shipment of milk to Berlin
from a distance greater than 75 miles. As a result of
this tariff the milk supply for the capital was con-
centrated within an average radius of 50 miles. This
rate was established in the interest of the Berliner
Milch Central, founded by members of the Associa-
tion of Farmers (Bund der Landwirte), one of the
most powerful political leagues of Germany. In order
to conciliate this organization, the government re-
mained deaf to the complaints of the retail merchants.
A plan was formed to bring milk to Berlin from Den-
mark by tank cars. The government declared, how-
ever, that milk was not among those articles for which
transportation in tank cars had been provided; and it
imposed such conditions and such formalities that
the originators of the scheme were compelled to give
up the attempt.

61

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

The Prussian government acts upon the principle
that it is not necessary to obviate "the natural disad-
vantages of the distant producers." According to this
rule, in the interest of the market gardeners of Paris
and its suburbs, Parisians should be forbidden to con-
sume, or at least should be made to pay exorbitantly
for, the fruits and vegetables coming from the south
or from Algeria.

The Prussian railways have a fourth class, lacking
in almost every comfort; although the average length
of travel in the third and fourth class is from 20 to 24
kilometers (13 to 15 miles). In 1907, during a tem-
porary embarrassment of the budget, the government
laid a duty upon railway tickets and abolished return
tickets on all German roads.

In the discussion over the budget of 1911-1912 the
minister of Finance described the effect of these inno-
vations on the Prussian railroads. They had pro-
duced a reduction in the amount of first-class travel,
the total receipts having fallen from 23,250,000
francs, in 1905, to 20,125,000 francs, in 1909, while,
in the way of normal development of traffic, an in-
crease equal to this reduction of 3,125,000 francs
might have been looked for. There was also a reduc-
tion in the amount of second and third class travel, and
a drop from the third class into the fourth class, which
is exempt from taxation. Third-class passengers were
paying a rate 50 per cent, higher than the fourth class,
while first-class passengers were paying 300 times
more.

i In Belgium and Germany, since 1907, the railways
have not carried any free baggage. During a journey

62

PRUSSIAN RAILROADS

f in Germany my traveling companion and myself had
( each to pay in round numbers i8o francs for our
tickets; but to this sum must be added nearly 60
francs for the 40 kilos (88 lbs.) of baggage of
my traveling companion, and more than 72 francs
for my 50 kilos (no lbs.). This additional charge
raised the cost of transportation in my friend's
case 33 per cent., and in mine 40 per cent. When the
price of tickets upon German lines is compared with
those upon French lines it is necessary to take into
account the 30 kilograms (66 lbs.) of exempt baggage
allowed the traveler on the latter.

The charge on all checked baggage has another in-
convenient aspect. It drives the traveler to carry by
hand as much baggage as possible. Such a practice,
of course, crowds the carriages and incommodes the
passengers. This condition has made necessary a
new rule, applied with rigor in Switzerland, forbid-
ding a passenger to bring into railway carriages bag-
gage exceeding specified weights and dimensions. Ed-
win Pratt ^ quotes a letter, which appeared in the
Daily Telegraph, of February 22, 1908, signed by an
Englishman, Mr. W. A. Briggs, who had lived in
Germany :

"The service is only half as frequent as ours and the
I fares only a trifle lower. They have been raised twice
during the last few years. If anyone thinks that a gov-
ernment runs railways for the benefit of the public he
is much mistaken. Goods (freight) trains are both in-
frequent and notoriously slow. Urgent goods are not

^Railways and Nationalisation.

63

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

recognized unless one pays double freight. Cheap excur-
sions are unknown.

"Finally, the red tape is atrocious. Any unfortunate
wight who rides past his station is mulcted in the differ-
ence and fined 6 shillings on the spot. No excuses are
available. If you overload a goods wagon you are fined
pounds for a few hundredweight put in on a dark winter
evening to empty a rulley. Demurrage is relentlessly en-
forced and you are made to feel that you are dealing
with permanent government officials who do not give a
straw for your convenience. I once had a parcel of I
cwt. sent from Strassfurt to Hamburg and when it ar-
rived the note was stamped and countersigned by no
fewer than 22 different persons."

' On February 23, 1912, the Prussian railway admin-
istration decided to refuse all parcels during several
days. The administration has relieved itself of all de-
tails of commerce. Goods must be delivered in bulk
and removed as such. There is no interval of grace
allowed either at departure or at arrival.^

By express the transportation of merchandise re-
quires one day for shipping formalities, and one day
to transport it 300 kilometers (187^ miles), or any
part thereof, however small the fraction. That is to
say, it would take three days to transport a package
from Paris to Laval, a distance of 301 kilometers (188
miles).

^ Report on Railways in Germany, by C. H. Pearson and
Nicholas Reyntiens, for the Board of Trade Conference, June
7, 1909 (Cd. 4677).

See for the series of discussions concerning the Prussian rail-
ways the collection of Marche Financier, by Arthur Raffalovich,
and the Revue Generate des Chemins de Fer, among others, the
number for November, 191 1.

64

PRUSSIAN RAILROADS

Special tariffs are the rule in Germany. They
form a collection of 915 volumes, which cost from
5 pfennigs to 6 marks each. Seven hundred and eight
are devoted to merchandise, 120 to live stock, 367 to
coal. This great variety of rates drives the shipper to
commission houses and insurance agents for informa-
tion and protection.

Ordinary merchandise is not considered as wrapped
unless it is contained in strong wooden boxes, or very
solid hampers. Unless he complies with these condi-
tions the German shipper is forced to sign a decla-
ration that his packages are either not wrapped, or
are insufficiently wrapped, in order to relieve the rail-
roads from all responsibility.

Although by slow freight the ton kilometer of mer-
chandise pays to the Prussian state railways an aver-
age rate of 4.59 centimes, while in France it is 4.57
centimes, do not be deceived by the .02 centime dif-
ference, which is due in part to the bulk and long
hauls of heavy and cheap commodities; and also to a
custom of grouping which brings together merchan-
dise of various sorts and ships it in full cars, thus
saving the railroad department expenses of handling.
The department disclaims any responsibility whatever,
the shipper having to insure himself with some com-
pany. Moreover, in order to discourage future claims,
the department imposes a tax of i mark on each com-
plaint.

When British and German railway rates are com-
pared it is usual to forget the short distances covered
by the British rate, an average of 35 to 40 miles.

Edwin Pratt is my authority for the following

65

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

typical example of the tactics employed by the parti-
sans of railway nationalization in Great Britain.

Mr. William Field, a member of the Railway Na-
tionalization Society, founded in 1907 in the United
Kingdom, published, during the same year, a pam-
phlet entitled, The Nationalisation of Irish Railways;
Defects of the Present System. In it he has repro-
duced a little table previously published in a tract of
the Fabian Society in 1899, ^"^ borrowed originally
from a work by Sir Bernard Samuelson, published in
1886. Yet the fallacies on which Sir Bernard Sam-
uelson's report was mainly based had already been
thoroughly exposed in the same year in which it was
issued by the late Mr. J. Grierson, general manager
of the Great Western Railway, in the appendix of his
book. Railway Rates, English and Foreign.

Grierson says:

"Sir B. Samuelson's report contains many errors of
detail. Comparisons throughout have been made without
due regard to the conditions attaching to the rates, or to
the different circumstances under which the traffic is
carried .... In almost every instance Sir B. Samuel-
son has taken the lowest rates in Germany, Belgium, and
Holland, which are applicable only to full truck loads of
5 and 10 tons, and, in some cases, viz., Belgium, to a
minimum weight of 8 cwt. These he has used for the
purposes of comparison with English rates for any quan-
tities over 500 lbs. ... In some instances Sir B. Sam-
uelson has not included in the foreign rates the charge
for loading and unloading. . . . Such are some examples
of the errors vitiating the comparison."

66

^RUSSIAN RAILROADS

Now, even though accurate, 22-year-old rates
would have no value. When they are applied to trans-
portation operated under conditions altogether differ-
ent they are used either in ignorance or bad faith.

Lord Avebury, in his book. On Municipal and Na-
tional Trading, says of the German railroads:

"It is a mania to harp on the cheapness of German
rates. Dr. Benmer, editor of Stahl und Eisen, has cal-
culated that the transportation charges in England are
10 per cent, of the total cost of producing iron, as against
23 per cent, in Germany."

M. Kaufman, in his remarkable work upon the
Politique Frangais en Matiere de Chemins de Fer, op-
posed to the refusal of the Prussian government to
lower the rates of transportation, "because of the
financial situation of Prussia," the reduction upon
express rates accomplished in France in 1892.^

In 1909 the German Centralverband, numbering
representatives of the largest industries of Germany,
expressed its discontent with the fact that, while pri-
vate companies were reducing rates, the Prussian gov-
ernment lines were raising them. In the discussion
over the budget of 1911-1912 Deputy Mano said:

"For forty years I have followed the fluctuations in
the rates on merchandise. During prosperous years,
when industry and the railroads are thriving, the depart-
ment says: 'Your business is all right, therefore you
have no need of rate reductions.' In times of depression

* See Yves Guyot, Trois Ans au Ministere des Travaux Publics.

67

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

it answers : 'Business is as bad for the railroads as for
you ; therefore we cannot reduce the rates.' "

To the above criticism the minister of Railroads
contented himself with the reply that, as the increase
in the capacity of the cars introduced within late
years had sensibly diminished the net cost of trans-
portation, the time had not yet come to consider a
general reduction of freight rates. In any case, "Rate
reductions ought not to be based upon financial results
favorable to operation. Rate reductions can be con-
sidered only when the annual revenues shall have
reached such a sound basis as to offer a sufficient
guaranty against unfavorable years."

Let us see what this sound basis of annual revenues
is : The profits of the railways were formerly used
to pay the interest on the government debt, of which
88.4 per cent, in 1899, 82.38 per cent, in 1905, 74.72
per cent, in 1909 was caused by the railroads.

Up to 1910 the Prussian general budget received
nearly the entire net earnings of the railways, with
insecurity, instability, and trouble in the whole budget
situation as a result. In 1907 the net earnings fell
below the preliminary budget estimate by 96,000,000
francs and in 1908, 190,000,000 francs. For 1909
on the contrary, following a pressure of freight traf-
fic, the receipts improved by 130,000,000 francs. This
improvement was due, in part, to an actual saving of
25,000,000 francs.

According to a report for the preceding year the
increase of traffic during the period between the first
of April and the end of November, 1910, was 5.97

68

PRUSSIAN RAILROADS

per cent, for passenger trafific, and 7.34 per cent, for
freight, or an average for all traffic of 6.66 per cent.

Railway receipts are dependent upon the economic
activity of the country. As a compensation for this
contingent and disturbing element in the Prussian
budget it was decided, at the beginning of 1910, that
out of the profits available after paying for interest
and the amortization of the railroad debt there should
be devoted: first, to the special budget of the rail-
roads, 1. 1 5 per cent, at least upon the reported capital
of the system, or actually 150,000,000 francs ($28,-
500,000) ; second, to the general state budget, in order
to make up its deficits, 2.10 per cent, of this same
capital, or 275,000,000 francs ($52,250,000).

The surplus was to be devoted to a regulation (or
compensation) fund destined to complete the pay-
ments to the general budget in the bad years, when
the net income would not be sufficient to meet fully
the above-mentioned payment of 2.10 per cent, to
the general state budget.

M. Friedberg (a National Liberal), before the
Chamber of Deputies, and M. de Gwinner, director of
the German Bank, criticized this reform before the
upper chamber. Looking at the situation from the
point of view of a state budget with a deficit, obliged
to have recourse to a loan, probably to a tax, they de-
manded why so important a special railroad budget
should be constituted at all. The Minister of Finance,
M. Lentze, observed that every year the railroads
demand reconstruction, improvements, additions, roll-
ing stock, transformation of secondary lines, etc.

69

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

Either the railways must live on their resources or
they must have recourse to a loan. The state budget
will be protected from excessive fluctuations in receiv-
ing 2. ID per cent, of the capital in support of the
general budget. For 1910 it was due to receive
35,000,000 francs ($6,650,000).

The ministerial plan was adopted.

The operating ratio was 61 per cent, in 1900; it
rose to 74.62 per cent, in 1908. M. Lentze considered
it a triumph when it fell to 68.99 per cent, in 1909, to
68.50 per cent, in 1910. It was computed at 68.63
per cent, for 191 1. The Minister of Railways asserted
that, in face of growing demands on the part of em-
ployees and of traffic, another rise must be antici-
pated.

Despite the high operating ratio certain economies
have been criticized. Naturally the department has
been reproached with not having treated its employees
fairly. Its answer has been that 60 per cent, of the
total expenditures of the railroad are absorbed by
employees. Thirty-seven thousand employees, or 12.3
per cent, of the total number, are earning from 1,875
francs to 2,250 francs a year, and 86,000, or 29.2
per cent., are earning from 1,500 francs to 1,875
francs. Six thousand new positions were created in
1912.

In Prussia the administration is strong and Parlia-
ment is weak. Therefore it is the minister who says:
"Our action will continue to be energetic with regard
to those groups trying to foment agitation." The De-
partment of Railways jealously guards its employees

70

PRUSSIAN RAILROADS

from any spirit of disorder capable of bringing about
a strike. As for the employees they are bound by
the clauses in their contracts, which each man reads
and signs, to hold themselves aloof from all agitation
hostile to order.

71

CHAPTER IV
STATE RAILWAYS OF AUSTRIA AND HUNGARY

1. Variations in the Government Railway Policy of Aus-

tria. — State Operation a Sorry Affair. — Superiority of
Private Enterprise.

2. The Railways of the Hungarian State. — The Zone Sys-

tem. — Political Aim. — Increasing Rates. — Insufficient
Equipment. — Increasing Expenses.

[ I. The policy of Austria in regard to the railways
Ihas undergone many variations. In 1850 the govern-
ment owned 61.38 per cent, of the railway lines. In
1855, however, imitating the example of France,
which came to terms with the important companies,
and, having need of resources, it sold its railways.
Hence in i860 it owned not more than 0.44 per cent.,
and in 1870 only 0.21 per cent. The economic devel-
opment of Austria was slow; the railroads not very
prosperous. The crisis of 1873 drove the government
to constructing railroads. In 1880 it owned 17.23
per cent, of the lines; in 1890, 43.51 per cent.; and,
in 1906, 67.95 psr cent., or 21,600 kilometers (13,500
miles).

The operation of railways has been a serious drain
on the state. In 1906 they yielded 2.85 per cent., and,
in 1907, 3.01 per cent. But this sum includes neither
interest nor sinking fund charges. In fact, operation

72

STATE R.\ILWAYS OF AUSTRIA AND HUNGARY

'; of the State railways has not paid expenses, and has
been a burden upon the Treasury. The lack of receipts
is chiefly due to low freight rates.
Charles Lee Raper says :

"They (the freight rates) have been much higher than
in the United States, though the character of the traffic
of the two countries has had much in common. Both
have had a large volume of the low grade commodities. It
would, therefore, seem to be fair to say that the Austrian
state service has not been notably successful in its cheap-
ness."

' The superiority of private enterprises in Austria
has been established by an investigation conducted by
the British Board of Trade. Four private companies

"Tiave never had to resort to a guaranteed reserve fund.
During the period 1902-1906 one of them did not
earn dividends on its capital; the second earned from
4 per cent, to 5.25 per cent., the third from 5.4 per
cent, to 6.6 per cent, while the fourth earned from
II per cent, to 12 per cent. And all these companies
pay taxes to the state.

2. In 1889 Minister Baross established the zone
system in Hungary. Bitter adversaries of the mileage
(paliers) system were enthusiastic over the idea of
introducing the zone system. The zones are only
more extended units of distance than the 10 kilo-
meter (6 miles) section of the Paris-Lyons-Mediter-
ranean railway line of France — a privately owned
line. The introduction of the system was simply a
political move, for the real object was to attract to

73

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

Budapest those Hungarians who lived in the far cor-
ners of the land, in order to make them admire the
capital, and thus give them an exalted idea of the
greatness of their country. In 1896, at the time of the
Millennial Exposition, the railroads carried for noth-
ing, and, I understand, lodged and fed entire families
at Budapest. However, as a species of compensation
for its complaisance in thus accommodating the coun-
try-folk, the railroad had increased the price of tickets
for short distance trafific during the preceding year.

In 1903 other changes took place. As it has failed
to yield the anticipated results, Hungary recently, in
large measure at least, has abandoned the system
introduced by Baross.

The average receipts per passenger per kilometer in
six European states have been: (One heller equals
$0,002.)

HeUeis

Hungarian railways 2.9

Austrian railways 2.8

Prussian railways 2.8

Bavarian railways 3.0

Holland railways 3.4

Roumanian railways 4.4

Financial returns upon the Hungarian state railroads
were as follows (in 1,000 crowns; i crown equals 20
cents) :

Interest Net

Capital Surplus at 4% Surplus

1888 98478s 37,074 39,391 -2,317

1898 2,042,613 83,850 81,704 2,146

1906 2,402,775 115,543 96,111 19,432

1908 2,527,863 91.493 101,114 -9,621

74

STATE RAILWAYS OF AUSTRIA AND HUNGARY

The service upon the state Hnes of Hungary during
late years has given rise to numberless complaints:
lack of comfort, insufficient rolling stock, too frequent
delays, and numerous accidents.^

The former secretary of the ministry of Commerce,
Joseph Szterenyi, in an address delivered before the
Chamber of Deputies in 1912, stated that from 1890 to
1909 the number of passengers on the railways had in-
creased about 300 per cent. During this period there
have been years in which the increase of traffic has
corresponded to the increase in the number of cars
in the following ratios: 9.5 per cent., as against 2.5
per cent.; 8 per cent., as against 4 per cent.; 10.6 per
cent., against 0.5 per cent.; 9 per cent., against 0.5 per
cent., and even 11 per cent, against o.i per cent.

The available number of locomotives is even less
satisfying. While the volume of traffic has increased
about 51 per cent, the number of locomotives has in-
creased only about 21 per cent. In 1909 it was esti-
mated that 606 more locomotives would be necessary,
in order to take care of the normal traffic. A number
of locomotives then in use were over 35 years old. Al-
though passenger traffic has increased in Budapest, at
the eastern terminal about 550 per cent, and at the
western terminal about 900 per cent., and although
freight traffic has grown approximately 100 per cent.,
it is only recently that any particular effort has been
made to improve the conditions mentioned.

From 1865 to 1907 the operating ratio increased

'^Der Zonentarif der Ungarischen Staafsbahnen, by Rudolph
Remengi, 1912, published by J. Benko, Budapest. Discussed in
the Journal des Sconomistes, July, 1912.

75

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

from 55 to yy per cent., and amounted to 80.6 per
cent, in 1908.

Beginning with 1893 the cost of labor has increased
by leaps and bounds. In 1904 the employees went on
strike and stopped the trains, asserting that the in-
crease of salary voted by the Chamber of Deputies was
too small. Two separate awards of an increase in
salary, the one in 1904 the other in 1908, have brought
the total amount to 22,000,000 crowns.

Following changes in the locomotive service in
1906 there has been an increase in the consumption of
coal of about 13 per cent., representing 4,000,000
crowns, and equaling a work increase of 30 per cent.

Maintenance expenses of locomotives and cars give
the following figures : per locomotive, in 1905, 3,003
crowns, and, in 1909, 4,530 crowns; per passenger
coach, from 640 to 820 crowns ; per freight car, from
96 to 134 crowns. The working efficiency of the
average car has fallen from 48 per cent, to 37 per
cent.

In 1909 the excess of receipts over expenditures
was less by 43,000,000 crowns than the sum neces-
sary for interest and sinking fund charges. The zone
system has recently been altered, in the hope of realiz-
ing more than 15,260,000 crowns.^

' Journal des Transports, September 28, 1912.

76

CHAPTER V

ITALIAN RAILWAYS

I. Purchase of Italian Railways. — Operation by Private
Companies. — Government Interference. — The Law of
June 22, 1905. — Extent of the Italian System — Efforts
of M. Bianchi. — Railroad Accounts. — Furnishing Em-
ployment. — ^Waste. — Labor. — Operating Ratio. — Rates. —
Special Tariffs and Commodity Tariffs. — Favors. — Par-
liamentary Control, and the Position of the Minister.

; At the outset Italy was induced by political motives
'to become a railroad proprietor. Before i860 the
lines were only local. After the adoption of the con-
stitution of the kingdom, the state bought up the
stock which was owned by Austria in the northern
railways, and took over the issue of the pre-
ferred stock to continue the construction of them.
But the government had no capital at its disposal,
and had pressing financial needs. In 1865, therefore,
a law directed^ the sale of the state lines to private
r companies. Two hundred million lire ($38,000,000)
) was realized by the state from the sale.
I The existing system was distributed among four
\ companies, known respectively as the West, the East,
/ the North and the South, but the division of territory
I between them was ill defined, and they were at

I 77

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

odds and enemies. Moreover, the railways of upper
Italy proved to have been handed over to two com-
panies with neither resources nor credit. These lines
were therefore repurchased by the state in 1875-1876
for political reasons, and the state took possession in
1878. The proprietors of the southern lines became
known as the Adriatic Company in 1885. For a time
these lines were not interfered with.

In 1878 3,000 kilometers of the 5,100 kilometers
of railroad in Italy belonged to the state. The minis-
ters (Minghetti and Spaventa) who had negotiated the
purchase, had intended that the state railways should
be operated by private companies acting as government
agents. / In 1878 a new ministry appointed an investi-
gating commission which, at the end of three years of
work, submitted a monumental report (1881) con-
taining the recommendation that the state railways be
leased to private companies for a fixed period. The]
commission declared most emphatically that the state/
ought not to operate them itself :

i.° Because the state performs very few functions
with greater efficiency or at a lower cost than private
enterprise is able to do.

2.° Operation of railways by a state is more difficult
than by private companies, a conclusion clearly estab-
lished by the investigations made by the commission.

3.° The state is far more apt than are private com-
panies to force changes in industry rather than to foster
natural development by offering more efficient service.

4.° The danger of political interference in the ad-
ministration of the railroads is very great.

78

ITALIAN RAILWAYS

The secretary of the commission above referred to,
who became Minister of Public Works in 1884, leased
the state lines to three companies, the Mediterranean,
the Adriatic, and the Sicilian, for twenty years, with
a possible extension of the lease. Of the 10,066 kilo-
meters of railways in Italy at that time, 9,364 kilo-
meters were thus allotted. In 1905 the system covered
12,827 kilometers (8,017 miles).

The companies had paid the state 275,000,000 lire
($52,250,000) for their equipment, but on condition
that at the expiration of the lease this equipment
should be repurchased from them. They guaranteed
to devote the 5 per cent, which the state had been
paying on the original loan toward the upkeep of the
equipment. The ordinary expenses were to be borne
by the state, the extraordinary expenses by the com-
pany. This distinction provoked numberless discus-
sions.

A division of profits between the companies and
the state was arranged for, and a reserve fund estab-
lished as a provision for extraordinary works. But,
after 1884, in place of an increase in receipts, there
was a deficit. Hence the government, instead of tak-
ing in, was obliged to pay out.

In doubt as to the future action of the state re-
garding them the companies were working under the
worst possible conditions in a country deficient in ag-
ricultural and industrial products. The taxes were
heavy and the returns small. Then among other
causes for the decreasing receipts was the rate reduc-
tion imposed by the state upon the companies, although
theoretically it had no legal right to propose such a

79

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

step. In the end it was required to make up the dif-
ference which resulted. Transportation had been thus
ruined and at the expense of the taxpayers. Moreover,
by continuing its intervention in the fear of a strike
among the railroad employees, the government pro-
ceeded to impose new burdens upon the companies, and
incidentally introduced a spirit of insubordination
among the men.

Conditions were now ripe for the Socialists in Par-
liament, and they passed without much discussion the
law of the 22nd of April, 1905, ordering the immedi-
ate return of the railroads to direct operation by the
state. This law had been prepared by a commission
appointed in 1898, whose report, in nine volumes, had
appeared in 1904-1905. A law of 1907 now provided
for the purchase of 2,300 kilometers (1,438 miles) of
the southern system.

The total cost of the railroads in Italy had reached,
in 1907, more than 6,000,000,000 lire. In order to
rehabilitate the system thoroughly. Parliament voted
a further sum of 910,000,000 Hre, which had to be
spent in Italy before 191 1. This made a total of
6,910,000,000 lire ($1,312,900,000). These ItaHan
lines, for each 100,000 square miles of territory, had
a length of 4.19 miles in 1875; 5-8 in 1885; 8.8 in
1900, and 9.3 in 1907-08, when Great Britain had
19.06. For every 10,000 inhabitants there were 1.7
miles of Italian railway in 1875, 2.17 in 1885, 2.9 in
1895, and 3.16 in 1907, in which year, in the United
Kingdom, the figure was 5.58.

From the very outset the disadvantages of state
operation made themselves felt. The roads were

80

ITALIAN RAILWAYS

never free from unwarrantable political influence and
the equipment was woefully defective for lack of
proper supervision.^

It had been expressly declared at the time of pur-
chase that the state system should have a manage-
ment entirely free from governmental and parlia-
mentary interference. L'ltalia, on the 28th of May
of the same year, observed that Bianchi, general man-
ager of the state railways, manifested the utmost
skepticism regarding the possibility of organizing state
railway operation in any effective and positive manner
in Italy.

His fears proved well grounded. Among other re-
forms the department was anxious to introduce a code
of discipline among the workmen in its shops. The
deputies, however, murmured. They took their griev-
ance to the Minister of the Interior, who referred
it to his colleague, the Minister of Public Works.
Ultimately M. Bianchi was informed that it would
be necessary to revoke such measures as he had
already taken. Naturally, feeling themselves thus
supported, the workmen redoubled their insubordina-
tion, which spread also among the mechanics and the
other employees.

At the end of a year M. Bianchi stated that the
affairs of the railroad were worse than they had been
in the beginning. Instead of being held to account
for the good of the service, he was completely under
the thumb of all those whose interests were opposed
to the real interests of the railroad, provided they
had sufficient influence in Parliament.
'See The Economist, November 4, 1911.

8i

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

The net returns of the state railways, passing over
the year 1905- 1906, when conditions were abnormal,
are as follows:

Fiscal Lire

1906-1907 43,000,000

1907-190^ 37,000,000

I908-I909 20,000,000

1909-1910 37,000,000

The increase from 1908- 1909 to 1 909-1910 is to
be credited to bookkeeping artifices designed to con-
ceal the real condition of affairs.

Have the improvements been proportionate to the
expenditures since the passage of the law authorizing
the purchase?

The purchase was coincident with several years of
economic activity. Operating receipts increased 29
per cent, in 1905-1906 over 1900-1901 ; 11 per cent,
in 1 906- 1 907 over 1905- 1906; 11. 5 per cent, in 1907-
1908 over 1906-1907. But this increase in receipts
was completely absorbed by the increase in expendi-
tures.

Before 1905, when a reduction was made in the
rate of taxation, the companies were paying to the
government 65,000,000 lire. To-day they would be
paying 80,000,000.

The law of 1909 exempted the state railways from
certain expenses, which, according to Engineer An-
cona, who is also a deputy, amounted to a relief of
24,000,000 lire. This makes it necessary to reduce
the 37,000,000 lire — the last figure in the above table
— to 13,000,000 lire. A further lessening of the ex-
penses for 1909-1910 comes from a reduction in the

82

ITALIAN RAILWAYS

charges for renewal of equipment of from 4 per cent,
of the gross receipts to 2^^ per cent. This makes
another reduction of from 8,000,000 to 10,000,000
lire, which, added to the 24,000,000 mentioned above,
amounts to a reduction of from 32,000,000 to 34,000,-
000 lire. There were similar reductions in the ex-
penses during 1910-1911.

The state has received no revenue from its capital
of 6,000,000,000 lire expended for construction, pur-
chase, and restocking the railroads. To this sum
must be added, also, 1,000,000,000 advanced by the
Treasury for their benefit. The railroads have been
paying interest and sinking fund charges on the loan,
but the department intends to be relieved from this
responsibility. It has recently demanded 30,000,000
lire a year for the purpose of doubling its lines.

The law governing the operation of Italian rail-
roads recognizes very distinctly that the fundamental
duty of state operation is to furnish work for the
national foundries and lumber yards. Naturally, the
Railway department must fulfill this duty rather than
consult the real needs and resources of the railways.

Contractors bring all possible influence to bear
upon the deputies, who care for nothing but public
opinion. If there are no orders there is no work for
the employees for whom the state is bound to furnish
work. Moreover, shutting down shops means ruin for
the manufacturers. Therefore, the minister orders
rolling stock without troubling himself to provide sid-
ings. Whereas, in 1899, the companies possessed an
average of 62 meters of siding per empty car, the

83

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILfiO

state, in 1909-1910, lowered the proportion to 25.1
meters, although 50 meters had been considered
indispensable for each of the 9,000 cars forming the
reserve. Quantities of cars were falling to pieces on
the tracks for lack of use; nevertheless, the depart-
ment contracted for an annual delivery of 5,000
cars. The manufacturers persuaded Minister Luz-
zatti to raise this order to 8,000 cars. The gen-
eral budget committee, however, had the courage
to reduce it to 4,000 cars, costing 29,000,000 lire
($5,510,000).

Experts have estimated that all this expense might
have been spared by a more rational use and better
care of the existing cars; 15 per cent, of the freight
cars are constantly under repair, and 33 per cent, of
the passenger cars.

The Italian taxpayers pay a full third more for
their rolling stock than if they bought it abroad.
Moreover, there is no redress for delays in construc-
tion and other errors on the part of the contractors,
because political influence returns all the fines pro-
vided for in the contract. The law says that orders
are to be divided as equitably as possible among the
various manufacturers of the same product. As a
consequence of this provision we find a legally or-
ganized trust, although such coalitions are forbidden.
Naturally, this trust is not interested in insuring an
economical expenditure of the state finances.

Here are some facts which have never been denied
in parliamentary debates : Old locomotives repainted
are bought for new. Concrete ties, which break at
the passing of trains, and soft spruce ties, the objects

84

ITALIAN RAILWAYS

of useless attempts at reenforcement with the aid of
injections of creosote, are bought by the tens of thou-
sands. Orders of 15,000 kilograms (33,000 lbs.) of
gum arable, 200 kilometers (218,733 yards) of red
velvet, a million straps, etc., are recorded, and
so on.^

Of course, labor plays an important role in the in-
crease of expenses, and in Italy, as in France, the Rail-
way department congratulates itself upon this state of
affairs, an excuse being thus presented for ever new
demands on its part. The report for the fiscal year
1910-1911 says:

"During the period 1902-3-4 there was an average of
104,833 employees, both regular and special, earning an
average of 1,360 lire a year, while in 1910-1911 we
have had, on an average, 143,295 employees, includ-
ing those engaged in repair work but excluding those on
the navigation service Hnes in operation on the i6th of
July, 1910, with an average outlay for each of 1,622 lire.
If the employees in 1910-11 had been paid at the same
rate as in 1902-4 the expenditures would have been
lessened by 37,700,000 lire ($7,163,000)."

This might be a regrettable state of affairs, from
the point of view of the railroad employees, but less
so from the point of view of the taxpayers.

The operating ratio has fluctuated as follows : 1885,
67 per cent.; 1890, 68 per cent; 1895, 75 per cent;
1903, 68 per cent; 1906-1907, 73 per cent; 1908-09,
78 per cent. For distances up to 150 kilometers (94

* The Economist.

85

Second Class

Third Class

8.93

S.8o

8.12

5-22

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

miles) passenger rates, per kilometer, according to the
revision of 1906, are (in lire) :

First Class

Express trains 12.76

Local and other trains. . 11.60

Over 1 50 kilometers the rate is established by zones.
In the case of slow freight the rate has undergone few
changes since 1885, and rather in the way of an in-
crease.^

' Italian railways make all sorts of rebates to ship-
pers, according to the amount of political influence
which the latter can bring to bear. Seven hundred
and seventy-six special tariffs have been promulgated,
and 1,509 regulating clauses in favor of special firms.^
As for deputies and senators they have a right to free
transportation for themselves, plus eighteen compli-
mentary tickets a year, twelve of which are sent them
without their even having to take the trouble to ask
for them.

There are free tickets of every kind and every color,
destined for functionaries, great and small, civil and
military. Still others, of a special color, are reserved
for journalists and for people who find it convenient
to claim that title when traveling.

The law of 1905 established an independent staff
for the ministry of Public Works, composed of a gen-
eral manager and a council, consisting at first of six
members, but later increased to eight. Five of these

^Railway Transportation, by Charles Lee Raper, 1912, G. P.
Putnam's Sons, New York.
' The Economist.

86

ITALIAN RAILWAYS

latter are attached to the department and three repre-
sent the citizens. Members of Parliament are not
permitted to be members of this council. The Minis-
ter of Public Works can annul the decisions and acts
of the council, but he cannot substitute his own initia-
tive.

According to the nationalizing party it had "placed
the government railways outside of politics." But a
subsequent law of 1907 provided for a superior com-
mittee of control, composed of six senators and six
deputies, active members of the two chambers of Par-
liament, a proceeding which places the minister in a
singular political situation.

In 1907 M. Giolitti nominated a committee of vigi-
lance, which was perhaps vigilant, but which did not
accelerate the speed of either passenger or freight
trains. In a response to a Parliamentary interpellation
he assumed entire responsibility for the unsatisfactory
condition of the railway system. Parliament did not
want him to resign; therefore, the majority endorsed
his administration. Hence, we have the following
peculiar state of afifairs :

If a minister is so satisfactory to the majority
in Parliament that it desires to keep him in office it
must endorse all the shortcomings of his administra-
tion. If, on the other hand, it has a mind to over-
throw a minister, it may cause his downfall for a
delay of five minutes.

87

CHAPTER VI

THE RAILWAYS OF THE SWISS FEDERATION/

Purchase Price Exceeded Expectation. — Profit and Loss
Account. — Debt of the Confederation. — Receipts and
Expenses. — Operating Ratio. — Labor. — Economy at
the Expense of Passengers and Shippers. — Prophecy of
Numa Droz.

The promoters of the existing Swiss railroad mo-
nopoly declared most emphatically that the new
regime was not expected, primarily at least, to yield
financial results, but rather advantages for passengers
and shippers. The actual purchase, however, was
limited to the four great systems, the government
passing over the lines of secondary importance,
which were less productive. Thus two classes of rail-
way service were established : a first class, consisting
of patrons of the more important roads and a second
class, composed of users of the small roads, which
could be safely neglected. The purchase price of the
four great systems was estimated at 964,000,000
francs ($183,160,000). The Confederation has ac-
tually paid 1,195,000,000 francs, or 231,000,000 francs
more than the figure first quoted.

On December 31, 1912, the general construction

* See Journal des Economistes, Dec. 15, igio, article by M. Fa-
varger, Nov., 1912. The Latest Accounts of the Federal Rail-
ways, July, 1913. The Revised Accounts of 1912.

88

THE RAILWAYS OF THE SWISS FEDERATION

account amounted to 1,472,000,000 francs, to which
must be added 45,824,000 francs representing divers
expenses, reduced by sinking funds to 28,177,000
francs. The total amount of capital sunk is therefore
1,500,469,000 francs ($285,089,000). This does not
include, however, the cost of the St. Gothard line.

Excluding the St. Gothard line, the profit and loss
accounts are shown in the following table :

Francs

1903 Profit 1,030,682

1904 I 6o,73S

^905 " 651,733

1906 4,828,523

1907 " 2,854,206

1908 Deficit 2,854,074

1909 " 6,630,301

1910 " 1,535,000

1911 Profit 5,575,000

1912 " 9,226,000

The cost of the St. Gothard line has exceeded by
34,000,000 francs ($6,460,000) the provisions of the
estimate of 1897. The expenses for completed works
and new acquisitions, which on December 31, 1909,
already amounted to 218,000,000 francs, had jumped
in 1912 to 292,000,000 francs, or 74,000,000 francs
more, and at that time there still remained unfin-
ished works to the extent of 69,000,000 francs, while
expenses in the near future for other lines are in sight,
amounting to almost 100,000,000 francs. In their
report to the budget of 1912 the board of managers
of the Federal railroads stated that they were anxious
to reduce the yearly expenses by 24,000,000 francs,
but such a reduction is out of the question.

89

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

The capital stock of the four old companies was
280,000,000 francs ($53,000,000). The dividends
paid to stockholders had been reduced, or altogether
discontinued, during the losing years, in order that
the interest upon the outstanding debt might be paid.

In the case of the state railways there is only one
stockholder, the state; and, if its railways lose, it is
the state, that is to say, the taxpayers as a whole, who
must make up the deficit.

In 1903 the consolidated debt was 1,075,152,000
francs. In 1909 it had risen to 1,344,221,000 francs.
On December 31, 1912, it had again increased 399,-
000,000 francs, or 37 per cent. The interest on the
debt, which was 36,000,000 francs in 1903, amounted
to 54,000,000 francs in 1912. Sinking fund charges
on the capital invested in the enterprise rose from
4,300,000 francs in 1903 to 7,840,000 francs in 1912.

The surplus should have been transferred, at least
in part, to a surplus fund. But the department, con-
sidering the unreliability of future operations, has re-
fused to put in force the provisions of the law gov-
erning the purchase, and has simply carried it over.
Some special expenses, represented by no actual value,
such as abandoned installations, etc., were still car-
ried on December 31, 1912, to the amount of 28,000,-
000 francs ($5,320,000). As long as this balance is
not disposed of, it is out of the question to talk about
surplus of receipts.

The annual appropriation of special funds, to de-
fray the expenses of maintenance and renewals not
already covered by operation in 1906, was 7,084,000
francs. In 1912 it was 9,325,000 francs.

90

THE RAILWAYS OF THE SWISS FEDERATION

There has been no miscalculation in regard to re-
ceipts. They were estimated on the basis of an aver-
age annual increase of 3 per cent. The increase has
been 4.8 per cent, for passengers and 4.5 per cent, for
freight.

During the last three years the gross earnings have
jumped from 174,000,000 francs, in 1909, to 206,-
000,000 francs, in 1912, or 18 per cent. But these
earnings will be reduced after the opening of the
Loetschberg line, and as a result of the St. Gothard
agreement, which has just been accepted.

Moreover, the expenses of operation have increased
on an average of 6.2 per cent., consequently at a pro-
portion greater than the receipts, up to 1908. Since
1909 this proportion has decreased. The operating
ratio appears as follows :

1903 6SS3%

1904 67.68%

igos 66.42%

1906 67.49%

1907 69.22%

1908 72.82%

1909 70.32%

1910 65.28%

1911 64.26%

1912 66.76%

During the same period the highest operating ratio
of the Paris-Lyon-Mediterranean line of France (op-
erated by a private company) was 53.5 per cent.

In 1909 the secretary of the department observed
that, taking into account the increase of interest,
extensions, and all those charges which, at the
beginning of 1912, bore so heavily upon the railway,

91

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

the annual increase in expenditures would ultimately
reach 20,000,000 francs. This year (1913) it has
been 11,270,000 francs.

After 1906, following an average rise in wages, to-
gether with an increase in the number of employees,
the ordinary labor expenses of the railroad exceeded
by 4,280,000 francs the figure of the preceding year.

Beginning with April i, 19 12, a new law concern-
ing salaries went into effect, which has brought about
an annual increase of 8,200,000 francs in the ex-
penses, without counting supplementary payments
to be made in the way of pensions and sick and
other benefits established on the basis of full pay.
Nor does it include the increase in the salaries of
laborers paid by the day. The total increase is esti-
mated at 10,000,000 francs.

From 1904 to 191 o the increase in labor expenses
was 14,370,000 francs, or 51 per cent. For all
other expenses the increase was only 36 per cent.
In 1902 there were 23,030 employees; in 1907
the number had risen to 31,300. On the ist of April
the tri-yearly rise in salary took effect, as provided
for by a law fixing higher maximums. This law has
increased the annual expenses by 10,000,000 francs.

With the object of balancing the expenses in
favor of the employees, certain economies were ef-
fected at the expense of passengers and shippers, such
as withdrawal of reduced fares on holidays, decreased
inspection of the road, fewer trains, speed of freight
trains lessened, a certain number of improvements
postponed, and resistance to demands for improve-
ments which were not too urgent. Finally the de-

92

THE RAILWAYS OF THE SWISS FEDERATION

partment determined to increase the rates when the
industry and commerce of Switzerland are already
paying internal transportation taxes double those in
force in neighboring countries.

The nationalizing of the Swiss railways has cer-
tainly proved of advantage to the employees. But,
are state operations carried on for the benefit of em-
ployees or for the public? Present conditions justify
the following prophecy of Numa Droz :

"Through this purchase our railroad policy is in course
of stiffening into a set of rigid regulations prescribed
by a poverty stricken department incapable of solving the
great problems of the future for lack of resources."

93

CHAPTER VII

RAILWAYS OF NEW ZEALAND

Capital Charges. — Receipts and Expenditures. — Net Op-
erating Profits. — Deficits. — Interest on the Debt. — Pre-
dominance of Political over Economic Considerations.
Causes of the Deficit. — Advancement According to
Seniority. — "The Government Strike." — Theory of
Operation at a Loss. — Profits from State Mines At-
tained Only at the Expense of the Railroads.

In i860 the first railway of New Zealand was con-
structed by the provincial government of Canterbury,
to connect the town of Christchurch with the port of
Lyttelton, separated from it by a chain of high hills.
In 1863 the provincial council of Auckland and Drury
conceived the idea of extending the line to Wellington.

The capital then and subsequently sunk in the rail-
ways of New Zealand, amounting, according to the
accounts, to £27,762,592 ($135,203,823), on the first
of March, 1909, is far from representing the whole
expense of the project. £1,289,840 ($6,281,520), the
cost of lines not yet opened on the 31st of March,
1909, should have been added to this sum. The total
amount would thus reach £29,052,432 ($141,485,343).
Moreover, no account was taken of the interest paid
on the capital sunk in lines not operated during the
thirty-nine previous years.

94

RAILWAYS O? NEW ZEALAND

Before 1882 the amount of the deficits can only be
surmised; since that date they have aggregated
£4,500,000 ($21,915,000). The total capital invested
from 1870 to 1909 has been about £40,000,000 ($194,-
800,000), of which £23,305,009 ($113,495,000) was
paid out of borrowed money. The rest has been raised
by the sale of pubHc land, and, above all, by the aid of
taxes — direct or indirect.

Since 1895 the capital cost per mile of open line has
risen from £7,703 to £10,351. This increase is due in
part to improvements upon the roadbeds. In order
to explain further such an increase in cost it is said
that the country of New Zealand presents unusual
difficulties — that it is situated far from the industrial
centers of the world, and that construction is on a
small scale. We might add that railviray construction
is considered as a species of national workshop, de-
signed to give employment to laborers out of work;
that none of the modern mechanical methods are em-
ployed; and, finally, that "the work is done by the
government and not by private contractors." ^

The gross earnings of the railways increased from
£1,150,851 in 1895 to £2,929,526 in 1908-1909. Byt
the expenses rose in even greater proportion. They
increased from £732,160 in 1894-1895 to £2,114,815
in 1 908- 1 909. And, if there had not been a reduc-
tion of the rate of interest on government loans, the
deficit of 1909, based on the "capital cost" of the open
lines, would have been £323,555, instead of £212,468.

The railway statement, presented annually to Par-
liament by the Minister of Railways, always shows a
" State Socialism in New Zealand, page 72.

95

Where and why public ownership has failed

"net working profit," without any indication that this
profit is always insufficient to pay the interest upon
the cost of construction at the average rate of interest
paid by the government upon the public debt.

During the year ending March 31, 1909, the rail-
ways earned a "net profit" of 2.93 per cent, on a capi-
tal of £27,762,592 ($135,203,823), the cost of con-
struction of the open lines. But, since the average
rate of interest paid on the public debt was 3.7 per
cent., the "net profit" is absorbed in interest payments,
and a deficit amounting to £212,468 ($1,034,719)
emerges, if interest is reckoned on the cost of the
open lines only. But real cost of construction includes
the cost of the unopened lines, making a total of £29,-
052,432 ($141,485,343), reducing the "net profit" to
2.80 per cent., and increasing the deficit by £262,760
($1,279,641). If the interest upon the open lines
only is considered the total deficit from 1882 to 1909,
in round numbers, is £4,500,000 ($21,915,000).

But as a matter of fact, according to the conditions
of its investment, ' interest at the rate of 4 per cent,
should have been paid on the railway debt. In such
case the deficit in 1908-1909 would have been for both
classes of lines £347,386 ($1,691,769) ; while the total
deficit since 1 881- 1882 would probably amount to at
least £8,000,000 ($35,160,000), and perhaps £10,000,-
000 ($48,700,000).

The deficit is due, above all, to the principal line of
the South Island, 1,299 miles long. The political in-
fluence of this part of New Zealand, formerly much
greater than it is to-day, contributed to the unprofit-
able railway construction in that territory. Sir Joseph

96

RAILWAYS OF NEW zEALAiJD

Ward, however, in explaining in Parliament the defi-
cit on the lines of the southern province, announced
that the lines of the northern province would pres-
ently need repairs, and that these lines would present
in time to come the same deficiencies as the others.^

Such accounts as these show the necessity of reck-
oning on large sums for repairs. Moreover, as the
Minister of Railways, Hon. J. A. Millar, said, in
1909:

"The enhanced price of materials, increased rates of
wages, and expenditures incurred on the works enumer-
ated (track renewals) have had a marked effect on the
maintenance expenditure, which has steadily increased
during the past 10 years."

Further, the public is exacting, and the government
must sacrifice economic considerations to those of a
political nature. Since 1895, according to Sir Joseph
Ward, rate reductions have reached £850,000, while
the value of increased train service has risen to £883,-
000. This reckoning takes no account of the conces-
sions in pay given to the railway staff, which amounted
to another £375,000.

Although from 1895 to 1907 the salaries of railway
employees were increased £375,000 ($1,826,250)
the Amalgamated Society of Railway Servants com-
plained that they were receiving lower salaries
than those paid by private companies, while
their hours were often much longer than would be
tolerated in any private business subject to the juris-
diction of the Arbitration Court.
^July 26, 1907. State Socialism in New Zealand, p. 74.

97

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

The causes of the deficit on the railways are :

1. The construction of lines in advance of require-

ments.

2. The high cost of all lines.

3. Delays in construction, principally due to lack of

funds.

4. Unprofitable concessions in service, fares, and

freight.

5. Rigid system of rates.

6. High cost of operation and maintenance, owing, in

part, to a certain lack of discipline, initiative, and
efficiency in the railway service.

One of the most serious causes of inefficiency is the
system of promotion, v^rhich is based principally on
seniority in point of service, in the hope of abolishing
favoritism and other abuses.

Government employees have often been accused of
making use of the so-called "government strike." The
general manager of railways wrote a letter in 1909 to
the chief mechanical engineer at the Addington work-
shops, making serious charges of inefficiency. But,
when the investigating committee assembled at
Christchurch on March 11, 1909, that same general
manager made a pitiful recantation. Yet the inves-
tigation had clearly demonstrated, among other things,
the difficulty of discharging useless men; of finding
capable men to replace them when discharged ; the lack
of encouragement of skilled labor because of the ab-
sence of all opportunity for advancement or increase
in salary; the utter absence of initiative shown
by the superintendent of the workshops and the lack

98

RAILWAYS OF NEW ZEALAND

of up-to-date appliances in certain lines of work. The
board of inquiry, the chairman of which was a distin-
guished engineer, Professor R. J. Scott, of Canter-
bury College, arrived at the conclusion that the cost of
production was greater at Addington than in private
workshops, and that the amount of production
was relatively much less in proportion to the number
of hands employed.

The Evening Post, of Wellington, said on June 17,
1909:

"Here, in miniature, we have the evils depicted which
are rampant more or less in every branch of the public
service; and, if the result is that at Addington we are
paying from 30 to 60 or 70 per cent, more for the work
done than it would cost us elsewhere, it is natural to in-
fer that the public service, as a whole, is also costing far
beyond its value."

For the reasons given above and a number of
others the railways of New Zealand have never earned
the full amount of interest on the capital cost.

However, the state has frequently declared that
it does not wish to make the railways pay. That far
and above such a consideration should be placed the
service rendered to the country in providing cheap
transportation of agricultural products to the markets.

This theory gives rise to two questions:

I. Why consent to recover 3 per cent, interest, in-
stead of 3.72 per cent, (the rate on state funds), and
why not, if this theory be just, consent to recover
only 2 per cent., or even less?

99

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

2. Is the system rendering all the service that it
ought to render considering its cost?

Moreover, arguments based on such a theory
have the prime defect of lacking a just standard of
measurement. They are marked by that vagueness
virhich so often envelops political conceptions and fos-
ters the worst abuses. They serve to enable makers of
electoral platforms and members of the most influen-
tial groups to instigate expenditures which weigh
heavily upon all their fellow-citizens, in order to in-
crease the value of their own property. Thus they
make their own political strength increase the "un-
earned increment" so violently denounced by the par-
tisans of nationalization of the soil and of state opera-
tion of railways.

Messrs. J. S. Le Rossignol and W. D. Stewart
have demonstrated very clearly the disadvantage of
railway operation at a loss.

A railway line is opened in a country which cannot
support it. It is therefore a parasitic line, which
serves only to injure other lines, or to be a drain on
the whole body of the taxpayers of the country. Be-
cause of its cost it stands in the way of rate reduc-
tions and improvement in the service of other lines.
It operates at the expense of either passengers and
shippers or of the taxpayers of other regions.

How about the development of the country? But
railroads cannot be constructed everywhere. When
the fundamental rule is lost sight of, that a region
ought to pay and to pay enough to compensate for
losses during the first years of operation, there can
be no further limit to extravagant expenditures. In-

loo •

&AILWAYS OF NEW ZEALANfi

deed, the financial failure of the railways has been
one of the chief causes of the arrested development
of the whole system. It took twenty-three years to
construct a section 200 miles long on the principal line
between Auckland and Wellington; and this line is
self-supporting. Then apart from the fact that this
dilatory method of construction has added enormously
to the cost, it is appalling to think of the huge sum
which the country has paid in interest during the con-
struction, to say nothing of the returns which might
have been gathered in and the settlement which would
have been promoted had the work been completed
with reasonable dispatch.

The resulting interest charges on the whole line
may be readily conceived. Instead of concentrat-
ing the funds upon one line, and completing it,
they have been frittered away in various parts of
the country, in order to conciliate political groups.
The government, unable to borrow more than a
certain sum annually, was at a standstill. If, on
the contrary, it had been given an opportunity
to finish the profitable lines, it might have been able,
with the resources that these latter would have yielded,
to pay the interest on the capital already borrowed;
its credit would have been improved, and, possibly,
the resources thus at hand might have permitted it to
provide for interest on sums to be borrowed for the
further development of the system.

Such a wasteful policy, far from aiding in the devel-
opment of the country, has actually retarded it. The
districts deprived of a railway have paid for those
in other places, while the slow rate at which these

lOI

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

railroads have been constructed, together with the ex-
cessive amounts which have been paid out to build
unproductive lines, have deprived other districts of
any hope of a railroad of their own. New Zealand has
at last begun to comprehend that the construction of
lines which do not pay is "bad policy."

The government has recently adopted a system of
forcing the railroads to earn their own interest on the
capital invested. Sir Joseph Ward, at Winton, on the
5th of May, 1910, even mentioned the necessity for
amortization. "The time for continued borrowing is
coming to an end, and that of repayment is approach-
ing."

Unfortunately the government finds itself between
districts which are demanding railways, districts
which have them, and which are demanding rate re-
duction, improvements of transportation and other
favors, and employees demanding increase of salaries
and shorter hours. The department of labor insists
that railways be constructed in order to give work
to the unemployed; while finance critics demand that
the railways be compelled to provide for the interest
on the capital invested in them, and that they earn
enough to pay for the new lines.

Yet, despite all the disadvantages connected with
government operation of railways, no one dares sug-
gest that the lines may be leased to a private company,
although a provision for such lease exists in the act
of 1900 (section 34), and such a proceeding would
undoubtedly be the best means of putting the finances
of New Zealand on a sound basis. It has been sug-
gested that the administration of the railways should

102

RAILWAYS OF NEW ZEALAND

be confided to a commission of experts who would be
independent of the influences to which public officials
are exposed. Even this system, however, would not
completely insure freedom from political interference,
were it only by reason of its origin and the necessity
for its renewal. Such a commission is also practically
certain to fall into all the errors of a bureaucracy.
The system has been employed in the Australian states,
notably Victoria, and in New South Wales.

The government of New Zealand is anxious to
make use of the railways to carry out a certain policy
relating to the distribution of population. The "stage
system" of railway rates worked out by Samuel Vaile,
and discussed with much approval in 1882, was espe-
cially designed to prevent the concentration of popula-
tion in cities and to keep it distributed over a vast
territory, by establishing very low rates in rural dis-
tricts and high rates in the urban districts. The ex-
periment, however, was never made.

New Zealand is developing. Little by little the
profitable lines have been completed, and some abuses
have been more or less checked. In fact, the govern-
ment has gone so far as to ask, as a condition of com-
pleting the Lawrence-Roxburgh railway, that the
people of the district guarantee at least 3 per cent,
interest on the capital cost. But although the re-
sults of railway operation are improving, and will
probably continue to improve, and although partisans
of state operation have been untiring in their at-
tempts to draw conclusions favorable to their argu-
ment, an unbiassed history of the railways in New
Zealand only condemns it.

103

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

Government property in New Zealand is exempt
from taxation. At each extension of its activity the
amount of property subject to taxation diminishes,
and, if these enterprises fail, the burden of the tax-
payers is increased. The principles of sound private
and public finance are the same everywhere, and
profit from public enterprises is indispensable in order
to establish the fact that they are an advantage as
public investments.

It is not so many years since the state of New
Zealand undertook the operation of two coal mines,
known respectively as the Seddonville and Port Eliza-
beth mines. In 1905, 1906, and 1908 the first was
losing money. In 191 1 it lost £3,219. In 1910 it
made a profit of £194, and in 1912, of £863. The
mine of Port Elizabeth brought in profits as high as
£21,313 in 1906. But its profits have greatly dimin-
ished during the last few years, and in 1912 were
only £3,964.

The explanation of these profits is simple. Up to
1908 the government had bought 166,000 tons out of
a total production of 237,300 tons for the railroads.
But it apparently found its own coal too expensive.
It began to buy coal from private dealers. In 19 12
it bought only 58,000 tons, out of a total production
of 244,500. Its mining profits, therefore, have been
mainly derived from its own railroad.

104

CHAPTER VIII

GOVERNMENT RAILROADS IN FRANCE

1. A Good Turn to the Socialists. — The Impromptu Pur-

chase of the Western Railway. — Extravagance. — In
Aid of the Old State System. — Charges Against the
Western Railroad Company. — Advantage to the Stock-
holders. — The Operation Blanche. — The Purchase
Price.

2. Net Profits of Operation by the State and by the Com-

pany. — Provisions and Rectifications Serve Only to
Aggravate the Situation. — Supplemental Credits. —
Share of Labor.

3. Attacks Upon State Credit. — 4 Per Cent. Bonds.

4. Conclusions.

I. In Book I, Chapter 2, I referred to the political
motives underlying the purchase of the Western Rail-
way of France. In order to do a good turn to the So-
cialists, Georges Clemenceau socialized this system.

The Minister of Public Works, Louis Barthou, saw
in the purchase a double advantage. It would be a
sop to the Radicals and Radical Socialists, for one
thing, and, in addition, it might serve to cover the
deficits of the so-called old government system, that is
to say the lines already under public management.
The deficits were not to be hidden, however. There-
fore, Minister Barthou, who had at first repudiated the
charge that such deficits existed, openly demanded that

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

the sum of 26,600,000 francs be set aside for the
benefit of the old system from the special treasury
account established by the law of December 18, 1908.

In November, 1906, the government introduced a
bill for the purchase of the Western Railway, although
it confessed "that no papers relating to such a project
were on file in the office of the Minister of Public
Works," a provision required by law. Nevertheless,
the government demanded that a law authorizing the
transaction be passed by the Senate and the Chamber
of Deputies, before the end of the year, in order to
prevent the Western company, which had had a profit-
able year, from increasing its net profit.

The Senate, however, refused to be intimidated by
threats. Its committee, through the secretary, M.
Pre\4et, who assigned the strongest possible reasons
for such action, rejected the purchase bill, although it
had already passed the Chamber of Deputies, by 364
votes against 187, 76 out of the 80 deputies from the
districts touched by the Western road having voted
against the purchase. Out of 46 senators, 44 were
emphatically against the bill. Nearly all the chambers
of commerce in France were also opposed.

The argument advanced in favor of the purchase
was that the Western company would never be able to
repay the advances that had been made it under the
name of guaranty of interest, that thus it was running
on government money, and hence it was neither more
nor less than a state department engaged in an un-
profitable operation.

Yet the results of its operation indicated that the
company was making the greatest possible effort to

106

GOVERNMENT RAILROADS IN FRANCE

extricate itself from the crisis of 1901. The receipts,
net profits and interest guaranties for 1901, 1904 and
1906 were as follows (in francs) :

Guaranty of
Receipts Net Profit Interest

19OI 182,910,000 65,236,000 25,740,000

1904 192,636,000 84,775,000 9,911,000

1906 207,958,000 89,625,000 5,964,000

But the charge was made that the company had ob-
tained its reduction in expenses only at the cost of
its employees. I give below the number of employees
and the increase in their salaries :

Number of Average

Employees Total ,Wages Wage

Dec. 31, 1900 19,849 24,435,000 fr. 1,230 fr.

Dec. 31, 1905 21,272 27,208,000 fr. 1,279 fr.

Thus we see that the number of employees had
increased, as well as the individual salaries, in spite
of the difficulties facing the company. Moreover,
during this same period, the sick and other bene-
fits, bounties and allowances of various kinds had
grown from 2,188,000 francs to 3,580,000 francs, or
an increase of 1,392,000 francs.

The other argument, harped on ad nauseam by par-
tisans of the purchase, was that on December 31,
1905, the Western railway's debt to the state
amounted to 302,569,000 francs, and the interest on
it to 117,300,000 francs, a total of 419,869,000 francs.

But the Western company had equipment estimated
at 350,000,000 francs. By forcing it to submit to
a deduction of 30 per cent, the price the government

107

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

would then have to pay for the road would be 245,-
000,000 francs. The difference between 419,869,000
and 245,000,000 — or 174,000,000 francs — was the
clinching argument on the part of the advocates of the
purchase to hasten action in order to safeguard the
interest of the state.

And how did this purchase safeguard the interests
of the state? The government took over the road at
once; but it increased its investment in the Western
company. The guaranty of interest to the stockhold-
ers would come to an end in 1935 if the company con-
tinued to operate the road, while, in case of purchase
by the state, it would continue to the end of the fran-
chise, in 1956. As a result the chief beneficiaries by
the purchase of the Western road were the stock-
holders. On the day when the road changed hands
its stock was quoted at 830 francs. It subsequently
fell to 810 francs, but the Cote de la Bourse et de la
Banque, the Moniteur des Interets Materiels, and I
myself immediately pointed out that the advan-
tages resulting from the purchase would raise the
value of the stock to more than 1,100 francs. At the
present time, June 17, 1913, it is quoted at 870 francs.

What did the purchase cost the state? The official
in charge of the financial end of the purchase (Direc-
teur General du Mouvement des Fonds) declared that
"it was not possible to determine it even approxi-
mately." Yet the Minister of Public Works declared
that the whole transaction could be called an "opera-
tion blanche." That is to say, it would cost the state
nothing.

We have already referred to the fact that the Seiiate
J08

GOVERNMENT RAILROADS IN FRANCE

rejected the bill authorizing the purchase of the West-
ern line. But the Clemenceau ministry brought so
much pressure to bear upon the senators that the pur-
chase was finally voted by a majority of three. Thus
the state found itself charged with the duty of furnish-
ing service on a system of 9,000 kilometers (5,625
miles). In the drafts and reports of the committee in
charge of the purchase, various settlements of the
points at issue between the government and the com-
pany were discussed, but these were all summarily
eliminated by the law of July 13, 1908, which ratified
an agreement with the Western company. The guar-
anty of interest, which was to expire in 1935, was ex-
tended to 195 1.

The remainder of the sums due from the company
upon bonds, certificates and guaranties of interest was
fixed by law at the sum of 7,122,000 francs ($1,353,-
180). There was no discussion of the 419,869,000
francs, nor even the 174,000,000 francs. The real
amount of the sums due the company is determined
by annual estimates. The sum total amounts to 4,972,-
334,000 francs ($944,743,000).

2. What are the expenses resulting from the oper-
ation of the system by the state?

The state took over the Western Railway January
I, 1909. During the five years of its operation by
the company, from 1904 through 1908, the average
annual net profit was 78,540,000 francs. In 1909, the
first year of state operation, this net profit fell to
69,970,600 francs; in 1910 to 57,169,200 francs; in
191 1, to 30,180,900 francs; in 1912, to 21,932,900

109

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

francs. From this last figure a forecast may be
made of what the profit of 1913 will be. Therefore,
and taking into consideration the probabilities of
1913, we have an annual average of 41,071,000 francs
for the' net profit from state operation, instead of
the 78,540,000 francs from operation by the company.

In a statement outlining the special features of
the budget of 1912, M. Klotz estimated that the deficit
on the operation of the Western Railroad would not
exceed 24,000,000 francs ($4,560,000).

On the other hand M. Cheron's report upon the
application for supplemental credits in favor of state
railways, submitted March 29, 1912, declares:

"The demand for supplemental credits, which we are
about to examine, constitutes a confirmation of the esti-
mates of the budget of 1912. It was, as we see now,
anticipated. The figures are none the less very disturb-
ing."

It was not anticipated in the explanatory state-
ment of the budget of 19 12. Some lines further
on M. Cheron adds :

"Progress has already been made in bringing order
into this department. It only remains now to control
the conduct of the enterprise with such vigilance and
severity as will reduce the truly exorbitant deficit in the
profits of operation.

"The Honorable Secretary states that the supplemental
credits granted in 1912 have decreased the net profits of
the old system by 3,813,400 francs and increased the
deficit of the Western line to 23,389,900 francs.

"Following the reduction effected by the commission

no

GOVERNMENT RAILROADS IN FRANCE

in the ordinary expenses of the Western hne, the in-
crease in the deficiency of the profits of the system af-
fecting the budget of the ministry of PubHc Works is
discovered to be 22,389,900 francs instead of 24,529,900
francs. The total deficit in the profits from the operation
of the system will thus be found to be for 1912, and,
including the original provisions, 81,535,900 francs, in-
stead of 83,675,900 francs allowed by the government.
If the deficit on partial operation be added, or 739,000
francs, we have a total deficiency for 1912 of 82,874,900
francs."

M. Cheron is basing his comparison on the year
1908, the last year of the company, with the present
condition of the state railway. But the purchase had
been voted by the Chamber of Deputies in December,
1906. The company had no more authority over its
employees, and its condition was altogether abnormal.
Moreover, during the fiscal year 1908 expenses had
to be met which, if the purchase had not been made,
would normally have been carried over into the year
1909.

The unfortunate situation of the Western company
serves rather to bring out more clearly the serious-
ness of the increase in the expenses of the system
after its purchase by the state.

It should be noted further that the actual deficit of
the company in 1908 was only 28,522,675 francs 68,
to which M. Cheron adds 3,300,000 francs, represent-
ing additional charges resulting from the agreement
regulating the sums due annually on the purchase.

As far as the old government railway system is
concerned, we can speak only of the receipts and ex-

III

WHERE AND WHY PITBLIC OWNERSHIP HAS EAILED

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112

GOVERNMENT RAILROADS IN FRANCE

penditures of operation, since the costs of construc-
tion have not yet been determined. Since 1908 the
net profit of operation has considerably diminished.

1908 1912 Increase

Gross receipts 58,969,41 1 f r. 60 67, 1 50,000 f r. 8, 180,588 f r. 40

Expenses of

operation 47,583,176 fr. 05 63,009,900 fr. 15,426,723 fr. 95

Net profits 11,386,235 fr. 55 4,140,100 fr. —7,246,135 fr. 55

The receipts thus rose 8,000,000 francs, while the
expenses increased 15,000,000 francs. Thus the same
condition is reached as in the case of the Western line.

M. Cheron, after having reported an annual in-
crease in the receipts of 3.50 per cent, "as merely sat-
isfactory," remarks : "The progressive increase of
expenses is the true cause of the decrease in the net
profit of operation."

The following table presents the expenses of opera-
tion:

1908 1912 Increase

Labor expenses . .24,337,000 fr. 35,655,600 fr. 11,318,600 fr.
Other expenses . .23,246,176 fr.os 27,354,300 fr. 4,108,123 fr. 95

Total 47,583,176 fr. 05 63,009,900 fr. 15,426,723 fr. 95

These figures drew the following criticism from the
secretary :

"It would be regrettable if the results of the public
operation of the Western line did not convince the de-
partment of the necessity of keeping down the general
expenses of the old system. We are anxious in this case
also to reach, or rather to return, to a more favorable net
profit. Outside of justifiable improvements in the posi-

"3

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

tion of the employees, there are expenses which could be
reduced or checked.

3. "Moreover, we would say that, in the case of the
old system, as in that of the Western line, the extraor-
dinary works which for some years have been in course
of construction (involving an outlay of more than
21,000,000 francs since 1909, together with the 31,000,000
francs demanded, and with the same excuse, in 1912),
ought to result in a development of traffic, and, as a direct
consequence, a corresponding increase in the net profit."

From the foregoing extracts it would appear that
the greater part of the increase in expenses came
from the raising of the wages and salaries of an en-
larged working force. The proportion varies for the
two state railway systems from ';/2, to 73 per cent, of
the total increase in expenditures. On the newly
acquired Western line, the improvements in the situa-
tion of the employees and the regulations governing
promotion represent together more than two-thirds
of the total increase in labor expenses.

While operating expenses from 1908 to 1912 have
increased 72,304,000 francs the gross receipts have
risen from 217,645,000 francs to 244,335,000 francs —
a gain of only 26,690,000 francs. The difiference is
at least 45,614,000 francs.

Moreover this deficit must continue to increase, be-
cause this year the state railways have just issued '300,-
000,000 francs ($57,000,000) of 4 per cent, bonds, on
which the state must pay interest in the future.

Foreseeing this bond issue M. Rouvier observed,
in a speech on the 26th of January, 1904:

114

GOVERNMENT RAILROADS IN FRANCE

"You will have to create a special issue that you will
probably term 'railroad' or 'pubHc works' bonds: and,
in spite of your delusion that, because you are going to
call it by another name, this new issue will be sold on
the market under the same conditions as are private
bonds, you will have made a serious attack upon the
credit of the state."

The prophecy has been realized. The Minister of
Finance did issue the 4 per cent, bonds. The 3 per
cent, rentes fell immediately to 92.65. In October
they were quoted under 91 francs. To-day (June 18,
1913) they are 83. The amount of depreciation thus
forced upon the 3 per cent, rentes has been greater
than the 300,000,000 francs borrowed by the state for
the railroad.

Optimists prophesied that these state railway bonds
would pull up the rentes; they have been pulled, but
they have been pulled down.

The question has been asked: How can a bond
issue of 300,000,000 francs have any influence upon
a market of 22,000,000,000 francs? But there are not
22,000,000,000 francs in circulation. A portion of
this sum is tied up in savings banks, insurance com-
panies, benevolent associations, the property of minors,
etc. There is only a limited amount left to bear the
entire weight of this issue of state railway bonds. The
4 per cent, bonds, issued at 503 francs, have remained
at about this figure.

Some improvements have been made in the West-
ern line; but in five years, from 1909 to 1913, the cost
of construction has been 718,000,000 francs ($136,-
000,000). According to the partisans of the pur-

"5

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

chase, "this is the fault of the Western company,
which deHvered a system in poor shape."

But at the end of 191 1 M. Colson, formerly Director
of Railroads in the ministry of Public Works, and now
councillor of state, declared:

"According to such information as we are able to
gather from engineers, whether those of the late Western
company or in our own service, it is clearly apparent
that, down to the final day on which it remained in the
hands of the company, the whole system was in ex-
cellent shape."

While his final statement could not well be more ex-
plicit :

"The state of the roads at the time of purchase would
neither endanger the safety of travelers nor impose ab-
normal financial charges upon the new management."

Whereas, the net profit per train kilometer varied
in the case of the private companies from i franc 75
to 2 francs 71, it was only o franc 53 upon the West-
ern (state) fine, and o franc 44 on the old system. In
other words, the state was operating its new purchase
at a figure four times higher than the operating cost
of private lines, and its old system at a figure five
times higher.

From 1909 to 1912, that is to say, in three years,
the decrease in net profit upon the Western line has
been 66 per cent., and the operating ratio has in-
creased to 91 per cent. This is bad enough, but the
situation is even worse on the old system. During the

116 •

GOVERNMENT RAILROADS IN FRANCE

same period the decrease in the net profit was "j}^ per
cent., while the operating ratio reached the enormous
figure of 95 per cent.

Conclusions

1. The purchase of the Western Railway was a
political measure, designed to conciliate the Socialists.

2. Presented in the light of an operation that would
cost the state nothing, an "operation blanche," it has
wrought serious harm to the state. The sole bene-
ficiaries have been the stockholders of the Western
company.

3. The employees of the state railway instituted
a strike, and their exactions have resulted in increased
expenses, which have not been offset by improvements
in the service.

4. The issue of state railway bonds at 4 per cent,
has caused a fall in 3 per cent, rentes.

5. The operating costs are even higher on the old
state system than on the newly acquired Western line.

117

CHAPTER IX
PUBLIC VS. PRIVATE OPERATION

Public vs. Private Initiative. — Extent of Railroad Lines
Operated by the States and by the Companies. — Oper-
ating Ratios. — Government Profits. — Reduction of
Rates in Great Britain. — Difficulties in Fixing Re-
sponsibility in State Railway Operations.

The advocates of State Socialism say with admir-
able assurance : "Wherever private initiative has
proved inadequate the state must step in."

Has the spirit of initiative been lacking in private
management of railways? Private companies have
been forced to struggle for a long time against gov-
ernment opposition, but to-day, although Prussia is a
flat country, where not a single tunnel is to be found,
and where the lines are much easier to construct than
in Great Britain, the British have a system of more
than 19 miles per 100 square miles, while the Prussian
system has only 16 miles, or 11 per cent. less.

Did the United States government build the daring
lines which have joined the two oceans?

Edwin Pratt, in his Railways and Nationalization,
has demonstrated that private companies possessed
more than 69 per cent, of the entire length of line of
the existing railways in 1908.^ And, following a se-

' Railways and Nationalisation, by Edwin A. Pratt, 1908.
118

PUBLIC VS. PRIVATE OPERATION

ries of debates with German publications, he brought
his figures up to date in the London Times, of October
I, 1912. Here they are :

Railways Percentages

Continents Stale Companies Total State Companies

Europe 107,600 99,600 207,200 51.9 48.1

America 12,200 314.700 326,900 3.7 96.3

Asia 36,700 26,600 63,300 58 42

Africa 11,200 11,200 22,400 5° 50

Australia 18,000 1,200 19,200 93.7 6.3

186,700 453.300 639,000 29.1 70.9

Thus, over two-thirds of the railways of the world
belong to private companies. Moreover, of the 24,500
miles of railway belonging to the state of British
India, 18,000 miles are operated by private companies.
In Holland all the lines are operated by companies.
In Belgium the tramway lines are longer than the
state railways, and they are operated by private com-
panies. Lines in Great Britain, which have three,
four, or even more tracks, are included in these fig-
ures on the line and not the track basis. /The total
length of line is 23,287 miles. The length of main
track, however, is 39,85 1 miles, and of main track and
sidings, 54,311 miles!

The greatest system in the world, that of the United
States, is owned by private companies. Mr. Bryan,
on returning from Europe in 1903, introduced na-
tionalization of railways into his platform, without
informing any of the members of the Democratic
party of his intention. This brilliant inspiration
helped to destroy his chances for the presidency.

The operating ratios suffice to show that superior

119

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

administrative capacity is not to be found on the side
of the several states which exercise it in this direc-
tion.

Operating Ratios
State Railways :

1908 Prussia 71 %

1908 Austria 76 %

Bavaria 65 to 72 %

1909 System bought by France from the Western
company 72 %

1910 Hungary 8o.67o

French Private Companies (1909) :

Compagnie du Nord S8 %

Compagnie d'l'Est 59 %

Compagnie d'Orleans S3 %

Compagnie Paris — Lyon — Mediterranee S3 %

Compagnie du Midi S4 %

We have seen that the state railways of Prussia
have yielded revenue to the state budget. But in
Belgium, Italy, Austria, and Hungary they have only
been a burden. The partisans of socialized railways
in France have neglected to tell us what the French
government railways have contributed to the state.

In the various countries state railways are exempt
from general taxation. The amount, however, that
would be collected from them were they private enter-
prises should, in all justice, be added to their expense
account. In France passengers and shippers upon the
state railwajr lines are taxed for speed. They pay a
stamp tax on baggage and other receipts, and way
bills, taxes upon vouchers, and custom duties on pit
coal. The saving resulting from economies in trans-
portation, as given in the following table, are reckoned,
and with reason, among government profits :

120

PUBLIC VS. PRIVATE OPERATION

Old system 10,511,900 fr.

System bought from the Western company 41,422,500

T^oi^^ 51,934,400 fr.

The following sums represent the contributions
made by the French (private) railway companies to
the state:

tford Est P.O P-L-M Midi ■S«o»d-

(Millions of Francs) £Ty^^

Transportation taxes 17,970 4,493 17,561 32,195 8,503 1,535

Franchise taxes .... 7,782, 7,687 9,867 18,828 5,228 994

Other taxes arising
from the railroad
industry 1,451 1,238 3,079 3,846 951 192

Economies in trans-
portation resulting
from contract con-
ditions 12,403 13,872 23,582 31,864 8,908 2,050

Army transportation 105 261 911 355 94 48

Total 39,711 27,551 ss.ooo 87,088 23,684 4,819

Or a total of 237,853,000 francs.

This burden per kilometer is a very heavy one.

Principal Lines: Francs

Nord 10,520

Est 7,603

Paris-Orleans 7,ii3

Paris-Lyon-Mediterranee 9,142

Midi 6,158

Secondary Lines 3,028

Such contributions to the state are not to be de-
spised, and, in any comparison between the profits per
kilometer of the government railways and those of
the railways operated by French companies, they
should be taken into account.

121

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

The following example, borrowed from the history
of the British railways, shows the necessity of grant-
ing large freedom of action to railways.

The railways of Great Britain had a certain com-
mercial policy. Their general freight rates, much more
profitable than special rates, represented 75 per cent, of
the total traffic. They had only one regulation which
applied equally to all shippers, and this regulation
was enforced. Before the rigid law introduced in
1891-1892 the railways, by way of experiment, had
made a rate reduction, worked out with care, but al-
lowing for changes in its provisions. If there should
be no increase in traffic as a result, the rate was to
be raised. To-day such action is no longer possible
except by the authority of the Railway and Canal
Commission. As a consequence, where during the
decade 1882-1892 rates had been reduced 14 per cent.,
in the decade that followed they were reduced only
2 per cent.

All state railway systems hold themselves more or
less absolutely free from any responsibility. We
have already described the point of view of the Prus-
sian administration in this regard. The Italian rail-
ways have adopted the point of view that any acci-
dent involving loss to their passengers or to shippers
is a dispensation of Providence. In France we have
seen a verdict of the Court of Brest, and an opinion
of the Court of Rouen, deciding against the State
Railway department, in its attempt to escape liability
for damages by appealing to "circumstances beyond

122

PUBLIC VS. PRIVATE OPERATION

their control" in cases in which no private company
jvould dream of offering such an excuse.

After having studied in detail the great European
systems, an American, Mr. Charles Lee Raper, con-
cludes : ^

(i) "That government operation of the railways has,
with a few notable exceptions, as, for instance, the
Prussian, not paid all of its expenses, and that it has
consequently been a burden upon the taxpayers.

(2) "That government operation, though it has beeri
a burden to the citizens as taxpayers, has not supplied
them with a particularly excellent service — that its
freight service especially has lacked in efficiency and
practical adjustability to traffic and industrial conditions.

(3) "That government operation, though it has not
been particularly efficient, has not been especially cheap —
that its freight rates have not been, after all allowance
for difference in traffic conditions has been made, as low
as those upon a number of the privately managed rail-
ways."

^ State railways may find themselves in one of three
situations :

First: Where they are profitable, and their profits
are absorbed by the public treasury. In this case the
interests of the shippers and passengers are being sac-
rificed to those of the state. This is the case in
Prussia.

Second : Where they lose money and the taxpayers
make up the deficiency. Here the interests of the tax-

^ Railway Transportation.

123

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

payers are being sacrificed to those of shippers and
passengers.

Third : Finally there is a third case, in which the in-
terests of the taxpayers, passengers, and shippers are
sacrificed to the demands of employees. In such cases
the railroad is being operated for the benefit of the
employees and not for that of general transportation.
This condition appears more or less in all state sys-
tems.

124

CHAPTER X
THE HOLY CITIES OF MUNICIPAL OPERATION

I. British Cities.— Argument Against Economic Liberal-
ism.— What Is Its Value?

The delusions of the advocates of state and munici-
pal ownership are generally set forth with that same
naivete that we have already seen displayed in the re-
ports upon the Western (state) Railway. Whenever
they are at a loss for examples of satisfactory results
from state monopolies they point to the municipal
operations of British cities.

They say with emphasis : In the country of Adam
Smith, and of Cobden, in spite of the Manchester
school, the cities have shown themselves the boldest
in the world, in entering upon the path of municipal
Socialism. London, Birmingham, Glasgow, and even
Manchester are holy cities. Could a more decisive
argument exist for the purpose of proving the inade-
quacy of private initiative, or that every industry
which is a monopoly in fact ought to become a legal
monopoly? Have they not achieved a success which
proves that municipal authorities can administer as
well as, if not better than, private enterprises?

The importance given to British municipal experi-
ments forces me to treat it in special chapters.^

" See Raymond Boverat : Le Socialisme Municipal en Angle-
terre et ses Risultats Financiers (1907), 2nd ed., 1911. Major

125

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

Darwin : Municipal Trade. Lord Avebury : On Municipal and
National Trading. Des Cilleuls : Le Socialisme A trovers les Siecles.
D. Bellet: Socialisme et Municipalisme. Hugo Meyer: Munici-
pal Ownership in Great Britain. Graham and Warraington :
Ta.xation, Local and Imperial, and Local Government, 1899.
Fairlie: Municipal Administration. Davies : Cost of Municipal
Trading. Municipal and Private Operation of Public Utilities.
Report to the National Civic Federation. Three volumes in
octavo. 1907, New York. Municipal Year Book, edited by Dun-
can, pubhshed annually by the Municipal Journal.

126

CHAPTER XI

OPERATION OF GAS AND ELECTRiaXY IN THE
UNITED KINGDOM

1. Gas Industry Founded by Private Individuals. — Munici-

palities Have Profited by the Experience of Indivi-
duals. — Two-Thirds of the Gas Furnished by Private
Companies. — Comparative Table.

2. Electric Enterprises. — Municipalities Opposed to the

Introduction of Electricity. — Minority Lighted at Ex-
pense of Majority. — Financial Results of Gas and Elec-
trical Undertakings. — Variations. — Local Authorities
Which Are Operating at a Loss.

I. In Major Leonard Darwin's remarkable study,
entitled Municipal Trade, I find the following figures,
indicating the number of British municipalities which
have undertaken to supply gas. During the period
1 820- 1 839 only three municipal plants appear. Dur-
ing the period 1870-1879 thirty-eight municipalities
adopted the system, and from 1890 to 1892 — fifteen.
Not until the gas industry had been firmly established
by private companies did municipalities take a hand in
the game, having then at their disposal the labor, build-
ings, equipment, mains, and consumers already pro-
vided for them by their competitors. Nor was this
change of proprietorship always attended by imme-
diately disastrous results. In such cases, however, a
disaster would have been a miracle.

127

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

An incident relating to Manchester, which has sup-
phed gas since 1824, betrays the sang-froid with
which municipal authorities are capable of treating
certain financial questions. On the occasion of a
royal visit to that city, in 1905, the gas reserve fund
was called upon to provide £8,897 ($43.3°°) to defray
the expense of the king's entertainment.

A Birmingham municipal gas plant was the grand
municipal ideal of Joseph Chamberlain. In 1874 he
bought out the two existing companies for £2,000,000
($9,740,000). The measure was regarded at the time
as a purely fiscal one. In 1905 Birmingham was
charging 2s 6d per 1,000 cubic feet of gas, when a
private company at Shefifield was charging is 5d.

Vince estimates that the favors granted to employ-
ees represent an expense to British taxpayers equiva-
lent to an increase in taxation of 4 shillings on the
pound, or 20 per cent.^

Sixty-three per cent., or almost two-thirds of the
public gas lighting service of the United Kingdom,
is furnished by private companies; the proportion is
the same for private gas consumption. In England
and in Wales the proportion of gas furnished by pri-
vate companies is 69 per cent. In the United King-
dom the consumers supplied by private companies
represent 59 per cent. ; in England and Wales 65 per
cent.

The capital of the companies has increased £2,017,-
000 ($9,822,790), while that of local authorities has
'Vince, History of the Corporation of Birmingham, 1902.

128

OPERATION OF GAS AND ELECTRICITY IN GREAT BRITAIN

decreased slightly. The gross receipts of the com-
panies are a Httle higher than those of the local author-
ities, but the net returns are less. It is easy to grasp
the reason for this. In the furnishing of gas local
authorities have certain privileges not accorded private
companies. The price of gas furnished by private
companies is 2s gd, by local authorities 2s 6d. Yet
the local authorities acknowledge a net revenue of
9^ per cent., while the companies show only s^/g
per cent.

According to a parliamentary report of January,
19 1 2, the capital invested in gas works in the United
Kingdom amounts to £134,000,000 ($653,000,000).
The following table summarizes the accounts and
operations of these gas undertakings :

Local Authorities

+Inc.
iQio-ipti 1909-1910 or —Dec.

Number 298 293 +5

Capital outstanding £30,200,512 £30,478,862 —£278,350

Receipts £10,829,758 £10,398,263 +£431,495

Expenditure £7,902,451 £7,710,985 +£191,466

Ratio to income (%) 72-95 74-15 — 1.19

Net revenue £2,927,307 £2,687,278 +£240,029

Equivalent return on cap-
ital (%) 9J4 854 +1

Gas sold (feet i,ooo's) .... 67,491,765 65,352,790 +2,138,975

Length of mains (miles).. 14,^02% I3.7S7J4 +345

Consumers (number) 2,666,146 2,590,279 +75,876

Public lamps 349,120 343,02i +6,099

Approximate average s. d. s. d. s. d.

charge per 1,000 feet 26 2 sJ^ — o o^

129

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

Companies

+Inc.

I9I0-II 1909-10 or —Dec.

Number S" Soi +10

Capital outstanding ^92,193,191 ^90,120,962 +^2,072,229

Receipts £20,446,438 ii9,95i,779 —^494,659

Expenditure £15,308,928 £15,097.658 +£211,270

Ratio to income (%)... 7487 75-67 —00.80

Net revenue £S,i37.Sio £4,854,121 +£283,389

Equivalent return on cap-
ital (%) 55^8 SH +%

Gas sold (feet i,ooo's) . . 115,342,163 112,334,153 +3,008,010

Length of mains (miles) 22,020 21,473 +547

Consumers (number) . . 3,75i.703 3.573,796 +177.907

Public lamps 371,665 369,882 +1.783

Approximate average s. d. s. d. s. d.

charge per i.ooo feet. . 29 2 g% — o %

We have no detailed report permitting us to follow
up the comparison between the results of operation by
private companies and by local authorities. But, in
any event, although municipalities have been furnish-
ing gas in Manchester since 1824, and in Beverly and
Carlisle since 1850, their example has not been fol-
lowed generally, since private companies are still sup-
plying gas to two-thirds of the population.

2. The first electric installations were established at
Eastbourne and Hastings in 1882, and in London in
1885. Bradford created the first municipal plant in
1889.

An act of 1882 authorized local authorities to buy
up companies at the end of twenty-one years, and
afterward, at the end of successive seven-year periods.

130

OPERATION OF GAS AND ELECTRICITY IN GREAT BRITAIN

In determining the purchase price only the market
value of land, equipment, material, etc., was to be
taken into account. No other compensation was to
be paid. The object of the act was to prevent the
construction of any more private plants.

The local governments were naturally anxious to
protect their gas plants against any possible compe-
tition. The testimony of Mr. S. Chisholm, provost of
Glasgow, before the committee of 1900, offers a typi-
cal example of this poHcy. Municipalities wanted
authority to construct electric plants only in order to
prevent private companies from doing so.

The City of York obtained a provisional order in
1892, but it did not supply electricity until 1900.
Birkenhead waited from 1886 until 1900; Bristol,
from 1883 to 1893; Greenwich, from 1883 to 1889.
Four years appeared to be the average delay, accord-
ing to the table submitted by Campbell Swinton,
which includes a list of fifty- four municipal electric
lighting orders. The local authorities were evidently
more anxious to prevent action by others than to
enter into the business themselves.

In order to protect the interests of its gas plant Bir-
mingham required, as the condition of its approval of
the Birmingham electric supply company in 1890, that
the latter should supply only the principal streets of
the city. In 1898, however, the company being pros-
perous, the city decided to purchase.^ At the time
the negotiation was completed the market price of each
share was f 10 ids od, a figure which would naturally

* Raymond Boverat, he Socialisme Municipal en Angleterre et
Ses Resultats, p. 190.

131

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

form the basis of the purchase price. The munici-
pality paid £420,000 ($2,045,000). Lost taxes and
sinking fund payments amounted from the beginning
to £17,000 ($82,800) ; that is to say, to £4,000
($19,000) more than the profits realized by the com-
pany in 1897. In March, 1901, after fifteen months
of operation, the deficit was £4,175 ($20,332); in
1902-1903 it had reached £4,813 ($23,239). The
number of consumers was 5,000, out of a population
of from 600,000 to 700,000; and this small number
was being supplied at the expense of the whole body
of taxpayers.

It is not enough for an industry to be municipalized
in order to bring in customers. Bath ^ bought out,
for £24,500 ($119,315) an enterprise which had cost
its founders £43,000 ($209,400) ; but municipalization
did not furnish it with consumers. In 1900- 1902 the
plants upon which the municipality had expended
£7,800 ($38,000) were out of use, and the engineer
estimated the sum necessary to put them back into
condition at £70,000 ($341,000). The town found no
company willing to take up the business. It therefore
continued to operate, but at a loss. In 1909-1910 it
had lost £1,335 ($6,500) and in 1910-1911 £157
($764).

A local government board return has been de-
voted to accounts of municipal enterprises during the
four years from 1898 to March 31, 1902. We give
below the results of the gas and electrical enterprises
to March 31, 1902:

^The Times (London), September 5, 1902.

132

OPERATION OF GAS AND ELECTRICITY IN GREAT BRITAIN

Gas Electricity

Capital estimate by municipalities ^24,028,000 ^12,508,000

Capital demanded 18,497,000 1 1,192,000

Average annual receipts 5,833,000 1,136,000

Expenses of operation 4,465,000 662,000

Maintenance and repairs 79,000 19,000

Gross profit 1,289,000 455,000

Interest and sinking fund 892,000 465,000

Net profit 397,000

Net loss 10,000

Gas, then, yields a profit. The gross profit was
£1,289,000, or 5.4 per cent, on the capital invested.
Any municipality might hope tO' obtain this gross
profit.

But if we deduct the amount necessary to pay off
the capital and pay interest, we would require a net
revenue of 4.8 per cent, on the capital invested. This
is allowing 314 per cent, for interest and an amortiza-
tion period of 32 years. Then, if 4.8 per cent, be
deducted from the 5.4 per cent, of gross profits, we
find that the profit to the municipalities is about 0.6
per cent. Thus, the municipalities can reckon that
they make a profit of a little more than 0.5 per cent.
Such are the dazzling "results of numberless experi-
ments" in England.

But Major Darwin shows that an interest rate of
3/4 per cent, is very low, and that it has a tendency
to increase. It is true that the period of amortiza-
tion can be lengthened, but a long period of amortiza-
tion would be only an added burden.

Further, Major Darwin makes a relative calcula-
tion, based upon the gross profit of municipal opera-
tions of gas plants for several periods.

133

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

Annual
Number of Average
Enterprises Profits (%)

Before i860 19 6.3

1860-1869 9 S-9

1870-1879 35 5-4

1880-1889 II 5-3

1890-1899 9 4.8

In these calculations the gross profit for the last
period is lower than that during the years 1898-1902.
Major Darwin therefore concludes:

"If we consider that local governments will have to
pay 4.8 per cent, during the 32 years of amortization of
capital, it can then be said that the profits on municipal
operation of gas plants will vary from zero to a trifle
more than J/^ per cent, at the maximum. In any event,
the later municipalizations of gas are less profitable than
those which preceded them."

On March 31, 1904, out of 190 municipal electric
enterprises 116 claimed a profit, while 74 reported
losses amounting to £80,504 ($392,054). The last
report of Municipal Trade is dated June 2, 1909, and
it includes only a few Scotch cities. It gives no
details regarding capital, and only the annual receipts
and expenses. In Edinburgh, in 1902- 1903, the excess
of gas receipts was £3,303; in 1903-1904 the deficit
was £3,397; in 1904-1905 the excess was £5,965, but
it fell again in 1905-1906 to £1,460.

For electricity the excess of receipts was £14,532
in 1902-1903; in 1903-1904, £23,997; in 1904-1905,
£21,143; in 1905-1906, £16,539.

In Glasgow excesses of receipts occur regularly,
but they are subject to extreme variations.

134

OPERATION OF GAS AND ELECTRICITY IN GREAT BRITAIN

The municipalities which operate electrical plants
have an excellent customer in their tramways, to the
operation of which electricity was first applied in
1885.

According to the Municipal Year Book for 1912
local authorities to the number of 140, having ob-
tained from the Board of Trade the "orders" pro-
vided for by acts of 1882, 1888, 1889, and 1909,
turned them over to private companies, whereas only
20 municipalities had made use of the privilege to buy
out companies and substitute public for private op-
eration.

In London the City Corporation, the Camberwell
Borough Council, and the Lambeth Borough Council
have the right to buy existing plants in 1927, and the
London County Council in 193 1.

In 1910-1911 the following 47 local authorities,
which were operating 16 electrical installations, were
doing so at a loss :

Acton, Alloa, Bangor, Barking Town, Barnstaple,
Bath, Batley, Beckenham, Bury St. Edmunds, Bux-
ton, Cambuslang, Clacton, Cleckheaton, Dorking,
Dudley, Elland, Farnsworth, Frome, Gillingham,
Gravesend, Hastings, Hereford, Heywood, Hove
(Aldrington), Kendal, Kingston-on-Thames, Kirk-
caldy, Leek, Loughborough, Maidstone, Middleton,
Morley, Paisley, Rathmines, Redditch, Rhyl, Staly-
bridge, Hyde, Mossley, Dukinfield, Surbiton, Tod-
morden, Torquay, Wakefield, Weymouth, Whitby,
Whitehaven, Wigan, Wishaw, Worcester.

A number of local authorities were operating at a
loss during the preceding year.

135

CHAPTER XII

TRAMWAYS IN GREAT BRITAIN

Tramways in Great Britain. — Opposition of the Municipali-
ties first to Tramways, then to the Omnibus Auto-
mobile. — The Light Railways Act and the Municipal
Journal. — The Tramways of Glasgow and the Street
Railways of Boston. — Birmingham. — The Tramways in
the United Kingdom and in the United States. — Paraly-
sis of Private Undertakings and Weakness of Munici-
palities. — Policy of Arbitration and Privilege. — Shef-
field: Robbing the Poor to Give to the Rich. — The Lon-
don County Council and the Tramways. — Advantages
of Employees. — Reduction of Transportation Rates at
the Expense of the Taxpayers. — Apparent Profits and
Actual Losses. — Situation of the London County
Council Tramways.

When in 1870 Mr. Shaw Lefevre (the present Lord
Eversley) introduced a bill granting to municipalities
the right to construct tramways, he declared that his
object was not to "authorize municipal operation."

However, certain municipalities gave the bill a sig-
nificance that its author never intended, and by inter-
fering with the construction of tramways by private
companies, further action on the part of the towns
themselves was, of course, indirectly promoted. The
bill gave to local authorities the right to purchase at the
end of 21 years, "by paying the value of the tram-

136

TRAMWAYS IN GREAT BRITAIN

ways, buildings, lands, etc., but making no allow-
ance for past or future profits of the enterprise, nor
any compensation for forced sales and other consid-
erations." It was to no purpose that it was demon-
strated to the committee of Parliament that a period
of only 21 years was too short.

As a result the tramways already constructed suf-
fered a heavy depreciation, and English capital, which
might have been devoted to enterprises of this char-
acter, was invested in foreign countries. The large
cities, anxious to keep their citizens within their own
limits, for fear of losing taxpayers, not only forbade
any extension of the tramway Hnes, but likewise set
their faces steadily against the introduction, first of
steam tramways, then of electric tramways.

The act of 1870 did not apply to Ireland. There-
fore a certain contractor, named Murphy, was able
to make a proposition to Dublin to establish electric
tramways there, purchasable only at the end of 42
years, at an increased valuation of 33 per cent. He
even offered to hand over a fixed percentage of the
receipts. But the partisans of the municipalization of
tramways in England and Scotland had sent delegates
to combat these proposals — a proceeding which re-
tarded their acceptance for two years.

The municipalities appealed to the act of 1870 to
prevent the construction of tramways by private com-
panies, and, as has already been said, opposed every
method of transportation which might compete with
their own enterprises. In 1905 the town of Newcastle
fought the introduction of omnibus automobiles which
the Northeastern Railway Company intended to op-

137

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

erate on the streets. The committee of the Municipal
Corporations' Association granted the desired author-
ity, but with the restriction that passengers could not
be taken up en route. Mr. Bonar Law, parliamentary
secretary of the Board of Trade, opposed this reserva-
tion, remarking:

"Even though municipalities are engaged in an indus-
try, is this a reason for giving them a monopoly which
would not be granted to anyone else in the business?
The question whether the House of Commons is to
govern the municipalities or whether the municipalities
are to control the House is beginning to present itself."

The restriction was rejected by 127 votes to no.

In 1896 Parliament adopted the Light Railways
Act, designed to facilitate construction of such rail-
ways in Great Britain; its duration, however, was
limited to five years. After that the law would have
to be repassed each year. The act did not define the
light railway, and, as a result, tramways have been in-
cluded under this title. Therefore, they could no
longer be purchased as provided in the act of 1870. At
the end of 1903, 244 requests had been received for the
application of the Light Railways Act, involving 870
miles of lines, and the committee had authorized 127
tramways having a length of 592 miles. This small
proportion indicates the pressure brought to bear by
the municipalities upon the government on the one
hand, and upon their own citizens on the other.

Nevertheless, when in 1901 Mr. Gerald Balfour,
president of the Board of Trade, submitted a bill,
asking that this act be extended for a further period

138

TRAMWAYS IN GREAT BRITAIN

of five years, he met with the violent opposition of
the Municipal Corporations' Association, an organiza-
tion designed to extend municipal powers and to in-
tercede for the towns with the government and Par-
liament.

The Municipal Journal, the organ of the Municipal
Socialists, observed: "We will not permit this bill
to take a permanent place on the statute books. The
astute promoters of tramways have simply found in it
a means of escaping the restrictions of the Tramways
Act of 1870, and to avoid the embarrassing purchase
clause." The Journal continues : "When, at some
future time, the rural districts are able to obtain their
current at half the price that it costs to purchase from
the municipal corporations, the consumers in the large
towns will no longer be willing to continue to pay the
present high rate. They will demand to be placed in
the same category as the consumers outside the city,
and they will have justice on their side. What, then,
will become of the municipal electric plants?" After
two attempts Mr. Balfour withdrew the bill, the gov-
ernment not daring to enter into conflict with the
association.

In 1S70 Glasgow was granted authority to con-
struct and operate its tramways. It did not decide to
do so, however, until 1894. It then introduced a fare
of y2d, and raised the wages of its employees. In
1899 it exchanged horse cars for electric cars. Finally
the municipality decided that it had an interest in own-
ing all the property along the tram lines beyond its
own immediate limits, and in articles in the Times, for
1902, the town was accused of having devoted to real

139

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

estate transactions profits which should have been ap-
pHed to paying off the debt on the tramways.

In 1 902- 1 903 Mr. Hugo Meyer, an American, for-
merly a professor in the University of Chicago, made
a comparison between the tramways situation in Glas-
gow and that of the street railways in Boston, the lat-
ter owned by a private company. The street rail-
ways in Boston were paying the city a sum of $432,-
500, or 13. 1 per cent, of the gross receipts, equal to
44 cents per inhabitant. The Boston elevated railway,
serving a smaller population than that of Glasgow,
pays to the city in cash and in services $1,550,000, or
nearly 13 per cent, of its annual income, which is at
the rate of $1.67 per inhabitant. In 1904 Boston had
one mile of street railway for every 2,300 inhabi-
tants, while Glasgow could boast of only one mile for
6,700 inhabitants.

Birmingham imposed such conditions upon the com-
pany to which it had granted a franchise that, at the
end of 1904, it had only one mile of tramways for
8,700 inhabitants.

In 1890 the cities of the United States having more
than 50,000 inhabitants had 3,205 miles of street rail-
way; England alone, proportionally, ought to have
had 3,190. The entire United Kingdom had only 984
miles. In 1896 the United States had 10,000 miles of
electric railways; the United Kingdom had 20. It is
admitted that the urban population of the United
States and that of the United Kingdom are the same.
In June, 1902, in the United States there were 14,000

140

TRAMWAYS IN GREAT BRITAIN

miles of electric railways within the limits of cities.
In March, 1904, in the United Kingdom there were
only 3,200. The inhabitants of British cities thus
have at their disposal less than one-quarter of the
facilities afforded to the citizens of the United States
by this method of transportation.

Mr. Meyer sums up the situation in his book, en-
titled Municipal Ownership in Great Britain:

"The paralysis of private enterprise by reason of the
doctrine that the profits which would be made by public
utility undertakings established in the streets should
belong to the public and not to 'private speculators' has
been complete and permanent. Equally complete and
permanent has been the powerlessness of municipalities
to fill the void that has been made by paralyzing private
enterprise."

They keep others from doing what they do not do
themselves. Such is the true result of the efforts of
municipal Socialists in England.

Municipalization involves an arbitrary policy com-
bined with a regime of privilege. On the one hand,
we have taxpayers who are making contributions in
order that a minority of users may have gas and elec-
tricity, or that the passengers in the street cars may
ride below cost; on the other, we have consumers of
gas, as at Nottingham, who complain that they are
forced to pay an exorbitant price for their gas in
order that the municipality may lower the taxes. ^ At
Sheffield the town proposed to apply the profit realized

^ See H. Davies, The Cost of Municipal Trading.

141

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

from the tramways to cover a deficit in the local taxes,
a proceeding which would have necessitated a rise in
the general district rate of 2d on the pound. The
workingmen, however, declared that, being the true
users of the tramway, the alleviation of the local taxes
would be at their expense — a policy tending to rob the
poor to help the rich.

Certain tramways were taken over by London by
virtue of acts of Parliament. The courts interpreted
these acts in such a manner that the stockholders
found themselves despoiled, while the London County
Council was in a position to become proprietor for a
sum very much less than the real value of the stock.
It was thus easy enough to draw at least temporary
profits from the enterprise. The Council subsequently
leased the tramways north of the Thames to a private
company, but decided to operate the tramways south
of it on its own account. The value in capital of the
two systems is very nearly the same, £850,000 being
invested in the northern system, and £896,000 in the
southern. The northern system is rated for tax pur-
poses at £18,000 more than the southern system.

In 1900 the profits of the northern system were
£39,000, and those of the southern £51,774, a mag-
nificent result, which might well be cited in favor of
direct operation of tramways by the city. But this
state of affairs lasted only a year. During the follow-
ing years it was reversed:

Systbm Operated Municipal
BY THE Company System

1901 ^40.151 ^14.325

1902 37,450 9,062

1903 Loss 2,250

142

TRAMWAYS IN GREAT BRITAIN

At the time when the London County Council under-
took the operation of the southern system it was yield-
ing a net profit of £64,000 ($311,680).

Why this substitution of loss for profit? The fol-
lowing reasons have been given : Increase in salaries
of employees; establishment of the lo-hour day; rate
reductions; and, in 1903, a slight increase in the in-
come tax.

From 1900 to 1902 the profits of the southern sys-
tem were £75,161 ; those of the northern, £116,601 — '
an advantage on the side of the private company of
a difference of £41,440. The Statist finds a greater
difference. In an article upon the tramways of Lon-
don it observes : "Since 1894, the date on which the
council became interested in tramways, out of total
profits of £326,581, £314,347, or 96 per cent, have
been made by the private enterprise."

In order to justify this decrease in the receipts of
the municipal undertaking the partisans of municipali-
zation say: "The situation of the employees has
been improved." Very good ; but if this improvement
places municipal employees on a different footing in
the way of salary from that of the employees of pri-
vate companies, these municipal employees become a
privileged class at the expense of the whole body of
taxpayers ; a small number of people thus profiting at
the expense of everybody else.

"But transportation rates have been reduced."
Again, very good; but, if transportation constitutes a
loss, the gift that the London County Council is mak-
ing to the passengers it transports is being paid for by
all the taxpayers.

143

Where and why public ownership has failed

Finally, the loss has been ascribed to the methods
of electric transportation recently introduced. But
the private companies have also had to introduce this
change.

Municipalities operating tramways show the same
weaknesses as the states which operate railroads.

In 1 905- 1 906 the southern system claimed a profit
of £4,000 ($19,480). But Mr. Haward, treasurer
of the London County Council, admitted before the
committee of the Municipal Corporations' Associa-
tion that, if the payment of the penny tax per car
mile for renewal had been enforced, there would have
been a loss of £4,000, or a difiference of £8,000.

Now the London County Council has declared that,
since 1900, the southern system has brought in £23,-
900. The difference just quoted of £8,000 would then
reduce this profit to £15,900.

The report of the auditor of the Local Government
Board (referring to the accounts of 1904- 1905)
called attention to the inadequacy of the fund devoted
to renewal, as well as to the custom of holding the
tramways responsible for only a third of the ex-
pense of maintenance of that portion of the streets
which they occupy. This latter custom of charging
the expenses of one account to another is an easy
method of increasing apparent profits, or of diminish-
ing actual losses. In any state or municipal enter-
prise it is very difficult to obtain honest and intelligi-
ble accounts.

The Statist, of June 30, 1906, proves that the
amount set aside to provide for wear and tear (de-
preciation), even during a satisfactory year of oper-

144

TRAMWAYS IN GREAT BRlTAUsT

ation, is only i.i per cent. The sinking fund is 2 per
cent. This makes a total of 3.1 per cent, a year. The
figure is clearly inadequate; but, if it were increased,
the apparent profits, small enough at best, would be
changed into losses.

The following table shows the situation of the Lon-
don County Council tramways at the end of the fiscal
year 1910-1911 {The Municipal Year Book, 1912,
page 6i8),i when the debt was £9,455,500:

I s d

Receipts of operation 2,232,817 15 10

Expenses of operation 1,337,769 13 i

Excess of receipts over operating expenses. . 895,048 2 9

Capital charges amounted to £662,231, leaving net
receipts amounting to £232,727, of which £129,229
was reserved for the renewal fund and £103,498 for
the general reserve fund.

Results clearly prove that the London County
Council is always operating at a loss. The report of
the Highways Committee of the London County Coun-
cil (see The Municipal Year Book, 1912, page 618)
states that the tramway receipts for the year ending
July 10, 1912, are £633,588, instead of £659,274, the
figure for the preceding year, a relative decrease of
£26,000 from the previous corresponding period.

The report declares that this decrease is owing to
an increase in the competition of other methods of
transportation. The tramways carry passengers only

" The Municipal Year Book for 1913 not having yet appeared,
I must make use of the figures quoted in the edition of 1912.

145

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

during two periods of the day, while the railway tubes
and the motor omnibuses travel through crowded
districts during the middle of the day. Therefore the
committee demands the extension of its system upon
these streets. It has submitted a preliminary plan
which provides for an added expenditure of £600,000
($2,922,000).

Last year the Highways and Improvements Com-
mittee proposed the construction of a tramway upon
St. Paul's bridge, extending to the west end of Cheap-
side. The London County Council demanded that
the bridge be used to connect the northern and south-
ern tramway systems. The cost of the project was
estimated at £1,631,200 ($7,943,900), to which must
be added £350,000 ($1,704,500) demanded by the city
for the enlargement of St. Paul's churchyard. The
committee insisted upon a shallow underground tram-
way between the southern end of Cannon street and
Cheapside.

The whole report and the plans that it includes re-
veal the mentality of these administrations. An enter-
prise is not successful. This unpleasant state of affairs
is due to private competition. Then drive out private
competition. The decrease in the receipts is not dis-
quieting, so long as the expenses are increased. Con-
sequently all sorts of extravagant plans are pro-
posed.

Such being the financial results of the operation of
the London County Council tramways, its partisans
enumerated the following advantages (see The Mu-
nicipal Year Book, 19 12, page 619) :

146

TRAMWAYS IN GREAT BRITAIN

a The relief of the tax rates from the profits of
the enterprise.

b Institution of all-night service.

c Workmen's cars.

d Rate reductions upon many lines.

But, above all, they insist upon the advantages ob-
tained by employees from:

e Establishment of the lo-hour day for all em-
ployees.

f One day's rest in seven.

g Increase of salaries.

h Furnishing free uniforms.

i Annual vacations of six days with full pay.

j Since 1909 the establishment of a conciliation
board.

Whence we may legitimately draw the following
conclusion : Municipal service must, above all, confer
advantages on its employees. Such undertakings of
right belong to them.

The Municipal Year Book, of 1912, publishes the
following summary of the situation of the tramways
and light railways in the United Kingdom, accord-
ing to the latest reports of the Board of Trade:

Local Governments

1910-191' 190^1910 Increase

Undertakings owned

(number)

174 176

Total capital outlay

(pounds sterling)

51,147.236 49,568,775 1,578,461

Lines open (miles) .

I,744J4 i,7ioj4 34

Cost per mile

(pounds sterling)

29,323 28,983 340

147

Decrease

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

Local Governments {Continued)

1910-1911 1909-1910 InoreMB Deoreane
Undertakings worked

(number) 136 136

Capital outlay

(pounds sterling) 4S>39'3.284 44,108,250 1,285,034
Tracks operated

(miles) 1,530^ i,S03j4 26j4

Gross receipts

(pounds sterling) 9-996,327 9,487,434 508,893
Working expenses

(pounds sterling) 6,146,947 5,887,243 259,704
Ratio to income (per

cent.) 61.49 62.05 0.56

Net revenue (pounds

sterling) 3.849,380 3,600,191 249,189

Equivalent return

upon capital (per

cent.) Syi SVs H

Car distance run

(miles) 221,646,847 212,465,787 9,181,060

Net revenue per car

mile (pence) 4.16 4.06 o.io

Net revenue per track

mile (pounds ster-
ling) 2,515 2,394 121

Passengers carried

(number) 2,231,731,639 2,102,438,010 129,293,629

Average fare per pas-
senger (pence) ... 1.04 1.05 o.oi

The following table gives the figures for the tram-
ways owned by private companies :

Private Companies

xgio-ipzi 1909-1910 Increase Decrease
Undertakings owned

(number) 122 124 2

Total capital outlay

(pounds sterling). 24,525,590 24,372,884 152,706

Lines open (miles) 8525^ 851^ ij^

148

TRAMWAYS IN GREAT BRITAIN

Private Companies (Continued)

_ 1910-1911 1909-igio Increase Decrease

Cost per mile

(pounds sterling). 28,760 28,623 137

Undertakings worked

(number) 138 141 3

Capital outlay

(pounds sterling). 30,069,172 29,556,166 513.006

Track operated

^(™1«) 1,05914 I,05IJ4 yYz

Gross receipts

(pounds sterling). 3,780,674 3.590,467 190,207

Working expenses

(pounds sterling). 2,353,994 2,244,871 109,123

Ratio to income

(percent) 62.26 62.52 00.26

Net revenue (pounds
sterling) 1,426,680 1,345.596 81,084

Equivalent return on
capital (per cent.) 4^ 41^ j^

Car distance run

(™'les) 88,847,396 85,378,890 3.468,506

Net revenue per car
mile (pence) 3.85 3.78 0.07

Net revenue per track
mile (pounds ster-
ling) 1,346 1.279 67

Passengers carried

(number) 675,445,481 640,751,429 34,694,052

Average fare per pas-
senger (pence) ... 1.24 1.24

The losses reported on tramways operated by local
governments in 1910-1911 affected the following 27
municipalities: Birkenhead, Blackburn, Bourne-
mouth, Colchester, Darlington, Dover, East Ham,
Edith, Ilkeston, Ipswich, Kilmarnock, Lancaster, Leith,
Lincoln, Lowestoft, Maidstone, Nelson, Oldham,
Perth, Pontypridd, Rawtenstall, Southport, Staly-
bridge, Hyde, Mossley, Dukinfield, Widen.

149

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

The above tables do not give the rates of deprecia-
tion. It is a pity that The Municipal Year Book has
not included them. But, besides the 27 local govern-
ments which have reported their losses, there are no
amounts recorded for depreciation and reserve for
Derby, Halifax, Walthamstow, West Ham (in 1909-
19 10), Yarmouth.

In one of the best administered municipalities,
Birmingham, the amount set aside for depreciation
and reserve is £24,413 out of total receipts of £318,-
882, which is a little more than 7.6 per cent.^ At
Glasgow it is £202,579 out of receipts amounting to
£949,488, or more than 21 per cent. This difference
between the two figures proves that the first is too
small. The advocates of municipalization will not
fail to point out the Glasgow figure, because it looks
well and increases the average, but it is altogether
exceptional.

' 7.6 per cent, on revenue is approximately equivalent to 1.5
per cent, on capital investment.

ISO

CHAPTER XIII

HOUSING OF THE WORKING CLASSES AND PUBLIC
OWNERSHIP IN GREAT BRITAIN

Condemnation for Sanitary Reasons. — Expropriation and
Sanitation. — Dispossessing and Housing. — Gross Re-
ceipts Apparently Concealed. — Bookkeeping Artifices. —
Miraculous Results. — Comparative Figures. — The Ac-
counts of Birmingham. — Glasgow. — Liverpool. — Man-
chester. — Sheffield. — Salford. — Selecting Tenants. —
Weakness of Group and Strength of Individual Initia-
tive. — Edwin Cannon. — Lord Rosebery. — "You Dispos-
sess More Than You House." — Bernard Shaw.

In a bill introduced by M. Siegfried, and passed by
the French Chamber of Deputies, on the 22nd of
April, 1912, as also in a similar bill providing for the
condemnation of property for sanitary reasons, intro-
duced by M. Honnorat, reference was duly made to
the example of England by a citation of the Housing
of the Working Classes Act of August 18, 1890.

By this act local governments are authorized to
demolish houses adjudged unsanitary, providing
compensation therefor, it is true, but with deductions
in the amounts allowed, based upon the different de-
grees of existing overcrowding and lack of sanita-
tion. Later the legislators made up their minds that
they were not doing their duty by simply putting the

151

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

inmates of such houses into the street in order to
improve their condition. Therefore, they proceeded
to authorize the towns to construct and even to man-
age houses for the working classes, granting them a
right of condemnation in order to procure the neces-
sary land. If the towns failed to provide as many
lodgings as they had destroyed, or if they were not
provided until a long time afterward, so much the
worse for those who had been dispossessed.

The energy in this direction of the London County
Council is pointed to with admiration and enthusiasm
by all interventionalists.

According to its report of October 7, 191 1, the Lon-
don County Council had carried out altogether 35
plans of expropriation and reconstruction from 1893
to March 11, 191 1. It had demolished buildings con-
taining nearly 23,000 rooms, occupied by 42,000 per-
sons, and furnished rooming houses occupied by about
3,000 people, or in all 45,000 tenants. It had con-
structed buildings aggregating 6,428 rooms, 2,519
cottages, and three lodging houses with 1,849 ^^ed-
rooms for single men. Counting 2 persons to a room
in these houses the Council had thus lodged 51,836
persons.

During the period mentioned a capital of £2,879,000
($14,021,000) had been invested in these undertak-
ings, bringing in a gross income of £207,340 ($1,009,-
700). Interest and sinking fund charges on a 60
years' basis absorb 49.60 per cent, of the receipts. The
expenses of management, including repairs (7.52 per
cent.), taxes, water, light, etc., represent 39.78 per
cent, of the gross receipts, uncollectible rents, 0.19 per

152

HOUSING OF THE WORKING CLASSES

cent., and losses on worthless paper 9.51 per cent.
Thus, we dispose of 99.08 per cent, of the gross
receipts, and reach the following imposing result :

"This gigantic housing undertaking is entirely self-
supporting, without recourse to the general resources of
the budget. It even yields profits which vary from i50O
to about ii,ioo."

But all the expenses for these municipal lodgings
were not charged to the municipal lodgings account, as
the following fact shows :

When the London County Council paid £200,000
($974,000) for the site of the Reid brewery, it entered
the property on the housing account at £45,000, and
charged the remaining £155,000 to the general im-
provement account.^

For the year ending March 31, 191 1, the total ex-
pense for condemnation and construction was £2,015,-
833, and the income £1,876; that is to say, less than
nothing. With the addition of £120,242 for adminis-
tration costs, the deficiency of revenue is £3,950,
which, of course, more than absorbs the small surplus
noted above.^

All right, say the advocates of municipalization.
Business is bad, from the financial point of view, but,
from the standpoint of sanitation, a service has been
rendered for which too high a price could not be
paid.

Out of a population of 4,537,000 people the London

^The Times (London), October 21, 1902.
'Municipal Year Book, 1912, page 752.

IS3

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

County Council has dispossessed about 45,000 indi-
viduals. It has housed 51,856. It has not created
new homes; it has only brought about displacements.
For it is scarcely probable that the victims of these
forcible evictions occupy the new or reconstructed
municipal lodging houses.

In the report of the Commission of the Municipal
Council of Paris, on the subject of cheap housing, M.
Rousselle and his collaborators say:

"We can testify to the fact that for several years
the mortality due to tuberculosis, which in Paris is still
34 out of every 1,000 inhabitants, has fallen in London
from 60 to 19 inhabitants per thousand. This outcome
is owing in large measure to the work undertaken by
the London County Council, a work which this single
result would serve to justify, if such justification were
necessary."

In other words the London County Council moves
I per cent, of the population and the mortality from
tuberculosis immediately drops 66 per cent.

This result is truly miraculous, but the most striking
feature of the whole statement is the tremendous dis-
proportion between given cause and effect.

In connection with municipal housing in Plymouth

The Municipal Year Book ^ gives the following data :

Average Mortality per 1,000

1896- 1905 1886- 189s Decrease

18.47 21.21 2.47

This reduction equals, we may add, 325 lives saved

annually.

^Municipal Year Book, 1912, page 775.

154

HOUSING OF THE WORKING CLASSES

Now, the Council of Plymouth has constructed:

I 264 rooms

2° 606 "

Total 870 "

Without overcrowding, not more than two persons
can well be counted to a room. This gives us 1,740
inhabitants housed out of a population of more than
125,000. It is a little difficult to see how the housing
of 1,740 people can possibly save the lives of 323 per-
sons each year.

At Birmingham buildings were demolished under
pretext of sanitation, but the land was not used to
build new houses for the working classes.

Mr. J. S. Nettleford, president of the Housing
Committee of Birmingham, testified, in 1905, that the
rents of the houses on Ryder and Lawrence streets
were far above the means of the unfortunate tenants
dispossessed by the improvement committee. The re-
sult of these improvements has therefore been the
taxation of the many for the benefit of a few indi-
viduals, "a detestable commercial operation."

The Estate Committee published accounts in which
there was no mention whatever made of the value of
the land upon which the houses were built. But a
little note appeared at the bottom of the page, saying
that the credit balance was equal to a ground rent of
X per yard. At the conference of June 7, 1901, a
councillor demanded the price of the land; where-
upon it was found that an investigation would be nec-

15s

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

essary in order to discover it. Mr. Nettleford ^ quotes
the results obtained from this investigation :

Accounts of the Accounts In- Charges per

Committee Ex- eluding Lodging and per

eluding Price Price of Week to be

of Land Land Met by Taxation

Credit Balance Debit Balance

Ryder Street: £ s d isd sd

22 cottages 83 I 5 IS3 3 7 28

Milk Street:

61 cottages 140 10 2 383 19 2 24

Birmingham does not appear to have kept up the
experiment.

Glasgow (802,000 inhabitants) commenced razing
buildings in 1866. Naturally, it soon found itself
saddled with an over-supply of land which the author-
ities were anxious to sell at exorbitant prices. As no
purchasers were to be found under such conditions the
corporation decided, about 1888, to build on its own
account.

Instead of houses designed for workingmen the cor-
poration constructed types of buildings more in keep-
ing with the costly sites on which they were to be
built. On May 31, 1905, the net cost of these struc-
tures amounted to £1,244,033 ($6,058,440), while the
value of the lands and of the buildings was estimated
at £923,165 ($4,495,800). A deficit of £320,868
($1,562,640) was the final result. Fifty thousand
people were driven out of the slums, but the city did
not furnish them with lodgings. Instead, it con-
structed imposing houses and shops. Moreover, while
awaiting the destruction of the condemned buildings,
'A Housing Policy.

156

HOUSING OF THE WORKING CLASSES

the improvement trust continued to rent the most un-
sanitary of these buildings.

In 19 II the net result of the whole movement was
2,149 lodgings for the families of the laboring classes.
The income from them is £25,000 ($121,750), which
allows a payment of 334 per cent, interest and one-
third of the amortization.

Liverpool has 759,000 inhabitants. It has con-
structed buildings representing a total of 2,686 lodg-
ings. Condemnation and reconstruction have cost
f 1,000,000. In 1909 the net income was £21,711,
or 2.17 per cent. The losses on worthless paper
amounted to 6.74 per cent. Taking into account re-
pairs, costs of administration, etc., the city of Liver-
pool collects i3^d per pound sterling invested.

In Manchester (865,900 inhabitants) the financial
results have been similar to those of Liverpool. Be-
tween 1845 and 1905 the city has rented 7,432 houses,
3,334 having been reopened after being renovated.
The net income in 1910-1911 was £7,262 or 3.80 per
cent, on a capital investment of £189,366. After
deducting interest and sinking fund there is a loss
of one penny per pound.

Leicester (227,242 inhabitants) has constructed
two buildings, containing 42 apartments.

Richmond (36,493 inhabitants) has built 135
houses, which are bringing in £2,455 annually to off-
set an outlay of £38,683.

157

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

Folkstone (36,000 inhabitants) constructed 50
houses and then stopped.

At Sheffield the corporation bought a three-mile
tract of land on the side of a hill, in the neighborhood
of very valuable real estate. It was said that the
object of certain municipal councillors was to play a
good joke on the owners of this property. In the end
the city was not only forced to buy more land, in
order to construct a roundabout road, but, by an order
of the King's Bench Division, it had also to pay a
considerable indemnity to the aforesaid proprietors
for the depreciation in value of their property.

Salford (231,380 inhabitants) has displayed very
great activity along the direction of housing the work-
ing classes; 2,236 houses have been declared unfit for
habitation, and 2,982 others have been reconstructed.
In addition to these efforts, one building containing 69
apartments, 405 four-room houses, 134 with five
rooms each, 95 with 6 rooms, or in all 703 lodgings,
have been provided. Then a cheap hotel, with 285
rooms, and a building containing 32 shops have been
also built. The average rent is i shilling 4 pence per
week, while in the rest of the city 5s and 5s gd are
paid for a 4-room lodging.

But since the motives which actuate committees
appointed to select tenants may be of various kinds
and more or less complex, it is customary for such
bodies to favor tenants who are willing to ofifer a
higher rent.

158

HOUSING OF THE WORKING CLASSES

Here we have the sketch of the great municipal
work of cheap housing in Great Britain. The Lon-
don County Council has evicted 45,000 persons and
lodged 51,000. Fortunately there are still a few in-
dividuals or private groups who construct houses,
otherwise the 4,486,000 inhabitants of the city of
London, for whom municipal lodgings are not pro-
vided, would be condemned to dwell in the open air.

But the action of the London County Council has
at least brought about one result, for, since 1889, no
more great associations are being formed in London
for promoting public housing.

But has any service been rendered to the people
by this attempt to paralyze private initiative?

"Every house which is built by public authority,"
says Mr. Nettleford, "prevents the construction of at
least four houses which would have been built by indi-
viduals," and he cites striking examples from Bir-
mingham.

"The partisans of municipalization conduct you," says
Edwin Cannon, "past thousands of houses, lodging
tens of thousands of inhabitants, to a half dozen houses
built at a loss by the municipality and then say to
you solemnly: 'Private initiative is weak'; when
all the time the facts are demonstrating the strength of
private and the weakness of municipal initiative."^

When the inhabitants of the slums do not go to
live in the municipal houses the advocates of Munici-
pal Socialism say: "But they can occupy the lodg-

* The Economic Outlook.

159

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

ings left vacant by those who do come to live in
them."

The dispossessed are simply driven from hovel to
hovel; they are not housed.^

Lord Rosebery, in a speech delivered at Shoreditch,
at the ceremony of the opening of the workmicn's
houses, said : "You have lodged 300 families, but you
have dislodged many more. That seems to me a
droll way to house the poor."

Socialists are acknowledging the defeat of the
movement. Bernard Shaw, however, while pointing
out the practical impossibility of establishing municipal
lodgings, concludes that the only solution to the prob-
lem is the municipalization of the soil.

' Boverat, Le Socialisme Municipal en Angleterre et les
Risultats Financiers.

160

CHAPTER XIV

HOUSING OF THE WORKING CLASSES ON THE
CONTINENT

1. Housing People of One Class at the Expense of Those

of Another. — Private Initiative. — The Call of the
City and Return to the Soil. — Pretexts. — Foreign Ex-
amples.

2. Germany.
3- Italy.

4. Belgium.

5. Holland.

6. Switzerland.

7. Austria.

8. Hungary.

9. Sweden and Norway.

10. Conclusions of the Report of the Municipal Council of

Paris. — Denying Facts. — The Strength of Private Ini-
tiative. — Weakness of Municipal Efforts.

11. Conclusions.

I. There are men who, full of sympathy for their
fellow men, wish to house them, feed them, and
dress them, but at whose expense? The trouble is
they want to house people of one class at the cost of
another.

Of late years the activity of the partisans of munici-
palization and socialism has been turned toward the
housing of the working classes, as if the term "work-
ing classes" alone were not sufficient to indicate the
retrogressive character of such measures. They are

161

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

instrumental in creating a class apart, who are to be
protected by other classes, utterly oblivious of that
spirit of equality inculcated by the motto of the
French Republic.

The interventionalists denounce the weakness of
private initiative, as though up to the present it had
not been responsible for the development of the cities
which these same individuals, from an entirely differ-
ent standpoint, so bitterly deplore. It never seems to
occur to them that, by deluding the people of the rural
districts into thinking that they will be offered desir-
able and more or less gratuitous homes, they are in-
fluencing them to leave the farms for the city. Their
real motives are concealed within such vague terms
as "public health," and "the housing crisis."

Nor are French interventionalists of all kinds ever
at a loss for foreign examples. In their report to the
Municipal Council of Paris (1912), upon the housing
crisis, and the creation of cheap homes, concluding
with the recommendation for a loan of 200,000,000
francs by the city of Paris for the purpose of con-
structing cheap lodgings, MM. Henri Rousselle, F.
Brunet, E. Desvaux, and D'Herbecourt review the
legislation and practice of foreign countries. We con-
gratulate them upon having at least made the attempt
to support their thesis upon facts.

2. Germany:

In Germany it is customary for municipalities to
ask for a direct loan from private associations and
individuals and to supplement the sums so raised by
municipal loans.

162

HOUSING OF THE WORKING CLASSES

Dusseldorf borrows up to 60 per cent, of the value
of its investment, with a 0.20 per cent, premium in
the rate of issue.

Frankfort (414,400 inhabitants) has constructed
and rents 65 houses, containing 366 apartments.

Ulm (57,500 inhabitants) has provided separate
houses, of which the family lodged therein becomes
proprietor. During the years since 189 1 it has owned
2,131 hectares (5,263 acres) of land. It has managed
to dispose of 35. The city of Ulm congratulates it-
self upon the results it has achieved. Everything
depends upon your point of view.

In 1896 Strassburg (173,280 inhabitants) began to
construct houses and to manage them directly ; it now
owns 1 1 buildings, containing 98 apartments, occupied
by 372 people.

Berlin (2,064,000 inhabitants) has done nothing
along these lines; nor has Hamburg (802,800 inhabi-
tants) any municipal lodging enterprises.

Freiburg im Breisgau (85,000 inhabitants) owns jy
houses, containing 266 lodgings, and costing 1,225,000
marks ($294,000), which sum was advanced at 3.75
per cent, interest by the savings banks. It was esti-
mated that the rent should bring in 5.25 per cent,
on the capital.

Magdeburg (279,600 inhabitants) has constructed
7 buildings, containing 50 apartments.

Barmen (170,000 inhabitants) has constructed 7
buildings, containing 50 apartments.

Emden (20,000 inhabitants) has constructed 228
houses. The capital invested by the village brings in
3.50 per cent, to 4 per cent.

163

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

Dresden (547,000 inhabitants) has constructed "out
of resources provided by the Krenkel Fund" a model
group of 5 houses, each containing 34 separate rooms.
"In this work the question of financial return has been
considered as wholly secondary." As a result, the
inhabitants of these houses are a privileged class, who
enjoy all sorts of advantages and pay 25 per cent, less
than the usual rents. With the help of the Krenkel
Fund the city has also undertaken the construction of
two other buildings, containing 36 apartments.

Munich (595,000 inhabitants) has devoted 1,040,-
000 marks ($249,600) to the construction of 15
houses, containing 167 apartments, for laborers and
other employees of the city.

3. Italy:

Louis Rousselle quotes these words of Garibaldi,
spoken at the time of the conquest of the two Sicilies :

"A government sprung from the people is before all
else bound to provide for the first necessity of the peo-
ple—commodious and sanitary homes at a moderate
cost."

Certainly, if any people were ever badly housed it
was the Neapolitans. I saw some of their hovels a
long time after Garibaldi had pronounced these words.
No change had been wrought by them in the filth
and misery of the majority of the population. How-
ever, the true home of the lazzerone is the shore.
The children swarm in the sun, and the sea air counter-
acts the pestilential atmosphere of the home.

The Italian law of May 31, 1903 — modified in 1907
164

HOUSING OF THE WORKING CLASSES

— has constituted an autonomous institution, "a sort
of financial organization with social intentions," to
quote the expression of Luigi Luzzatti, recently Min-
ister of Foreign Affairs.

Public construction and control of such works are
in force only in Venice, Parma, Reggio, Emelia, Vin-
cenza, Sestri-Ponente, and Carrara.

Venice (167,000 inhabitants) owns 396 houses,
lodging 2,000 persons.

Parma (51,300 inhabitants) has 82 houses contain-
ing 508 rooms, and sheltering 130 families, or 724
people.

Sestri-Ponente (23,100 inhabitants) has 11 houses,
each containing 20 apartments.

4. Belgium :

Brussels (195,600 inhabitants) has appropriated
sums for housing purposes amounting to 2,500,000
francs ($475,000). But our report declares that it is
necessary to subtract half as devoted to sanitation.
Thus, 1,250,000 francs ($237,500) remained to be
applied to the experiment. On this basis the net cost
of one rented room is 3,575 francs ($679). It is all
quite simple.

The Commission estimates the total charges at from
15 to 30 per cent, of the rent. The bonds of the
city of Brussels were issued at about 2.70 per cent.,
interest, premiums and amortization included. The
annual rent of one room, taking into account the
higher rent of small shops, will be about 98 francs
51 ($18.72).

Saint Gilles-pres-Bruxelles (63,000 inhabitants) be-

i6S

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

gan in 1894 with 5 small, one-story houses. Later this
system was abandoned, and the town now has a group
of tenement houses, comprising 130 lodgings.

The loans contracted by the municipality are issued
at 3.25 per cent., with an amortization charge of 44
centimes (9 cents), or 49 centimes (10 cents). This
appears about to equal the average income.

5. Holland:

A law of 1853 permits officials entrusted with the
duty of looking out for house sanitation to enter any
building, even in the night. The law of June 22,
191 1, confers upon municipal councils the right of
preventing the occupancy of unsanitary buildings and
of regulating the number of people to a house. But
no city has constructed or rents houses.

6. Switzerland:

Geneva (145,000 inhabitants) has constructed
buildings containing 43 apartments and iii rooms.

Lausanne (65,000 inhabitants) has constructed 8
houses, containing a total of 24 apartments.

Zurich (191,200 inhabitants) began by building
houses for its municipal employees. In 1907 it erected
25 buildings, containing 225 apartments; in 1910 it
constructed 228 apartments, and 76 attic rooms. It is
now planning to construct 370 new houses.

Bern (85,000 inhabitants) built 134 small houses,
containing 182 apartments in 1895, and, in 1898, 25
new houses.

Neuchatel (23,600 inhabitants) has built houses
containing 47 apartments.

166

housing of the working classes

7. Austria:

In 1911 a plan was discussed in Vienna (1,999,-
900 inhabitants), involving an outlay of 480,000
crowns ($96,000), for the construction of temporary
homes for the homeless.

8. Hungary:

In 1908 the Hungarian government proposed to the
Chamber of Deputies to build a group of houses in the
suburbs of the city of Budapest (791,700 inhabitants)
capable of sheltering from 8,000 to 10,000 families. A
credit of 12,000,000 crowns ($2,400,000) was opened
to the ministry of Finance, and a tract of land, con-
taining 169 hectares (417 acres), was bought at Kis-
pest, while in the tenth district a second tract, contain-
ing yy hectares (190 acres), was purchased. On May
I, 191 1, 970 apartments were finished. In 1912, 2,000
other lodgings were to be open to rent. The work is
to be finished in 1914. As tenants the preference is
given to laborers and subordinate employees of the
government. These houses are exempt from state
taxes.

In 1909 the burgomaster of Budapest asked for an
appropriation of 69,000,000 crowns ($13,800,000)
for the construction of cheap lodgings. In all the city
has constructed 26 buildings, containing 1,600 apart-
ments, and costing 27,000,000 crowns ($5,400,000).
On September 19th of the current year, it was decided
to construct 1,000 more.

A special feature of the lodging schemes of Buda-
pest has been the establishment of temporary settle-
ments, containing 3,000 apartments, and expected to

167

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

last 20 years, at a cost of 8,100,000 crowns ($1,620,-
000). Still another special feature has been the con-
struction of a furnished hotel, containing 500 beds.
The city is planning to build others.

9. Sweden:

Stockholm (344,000 inhabitants) owns 12,000
apartments. According to the memorandum of M.
Gunichard, one of the municipal directors of the
city, 10,136 lodgings are to be considered as hous-
ing 21,000 persons, almost 7 per cent, of the en-
tire population of the city. But "these apartments
are situated in old houses, about to be demolished, and
the city is trying to sell the land."

The government has also built houses for the bene-
fit of government laborers and employees, especially
for those connected with the railroad and telegraph
services. In the city of Stockholm 443 apartments
are reckoned to 1,700 people.

Norway :

Christiania (227,600 inhabitants) has built and
rents two buildings, containing 152 rooms.

10. After their review (summarized above) of mu-
nicipal housing in general, M. Rousselle and his col-
laborators on the Municipal Council say, with em-
phasis :

"The conclusion of this rapid review of the work ac-
complished abroad in the matter of housing the working
classes is that in all the great cities the officials in power
have approached the problem squarely and have at-

168

HOUSING OF THE WORKING CLASSES

tempted to solve it by the most direct and energetic
means."

Wherefore, there is bitter indignation against
"France, which, alone among the great modern na-
tions, obstinately refuses to municipalities the right
of direct interference, despite the failure of private
initiative and in the light of universal experience."

It is curious to note the different interpretations to
which a single fact is susceptible. These municipal
councillors speak of the failure of private industry
and universal experience. But, without private initia-
tive, where would ninety-nine one hundredths of the
population of London be living? The irrefutable
facts already enumerated show that, in most of the
cities which construct and rent apartments, the privi-
leged classes who occupy them form but an infinitesi-
mal portion of the population. If individual owners
had not housed for a long time, and were not still
housing, less favored mortals, the great cities would
not exist at all. And still another fact that should
be observed in this connection is that, in a certain
number of these cases, municipal lodgings actually
constitute supplemental wages for employees and la-
borers.

From no possible point of view is the desire to
house so many people justified, and, moreover, it
threatens both political and social dangers in the fu-
ture. For example, the Hungarian government estab-
lishes settlements of small homes near Budapest.
Then the municipality of Budapest, in order to meet
this competition, builds houses in its turn. I gaze

169

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

with awe on those states and cities which, while con-
fronted with the necessity of husbanding their re-
sources, have the courage to launch out into such
extravagances.

According to the advocates of municipalization, all
great cities should construct and manage workmen's
houses. But when they cite facts in support of their
contention, their facts prove precisely the opposite
from what they intended them to prove. The majority
of the great cities of the world neither construct nor
administer houses for the benefit of the working
people.

Nor have such cities as have undertaken this kind
of work displayed the courage of their convictions,
as the oft-quoted example of the London County
Council proves. In cities containing hundreds of
thousands of inhabitants lodgings are built for a few
hundred people. Yet we French are airily urged:
Imitate them! If we should imitate them in the same
degree our undertakings would certainly not amount
to much.

However, the following circumstance proves that
the efforts of the promoters of municipal lodgings
are bearing some fruit. The prefect of the Seine is
demanding the creation of a public bureau of cheap
lodgings, to which the city of Paris shall hand over
the millions set aside according to the law of December
12, 19 12, for that purpose. The plan provides that
the bureau shall attend to the payment of interest, and
the reimbursement — after 75 years — of the capital
thus invested by the city.

But at what rate of interest can the city of Paris
170

HOUSING OF THE WORKING CLASSES

borrow now (June, 1913)? The bonds issued at 3
per cent, on May 21, 1912, and rated at 285 francs, are
now 250 francs; moreover, the housing bureau must
be responsible for capital and all general expenses
of administration, rental and up-keep at a gross
rate of 2 per cent., as well as the expenses of
control by the city of Paris at a gross rate of 0.15
per cent. It must set aside 0.50 per cent, for a reserve
fund to cover the more costly repairs and unexpected
expenses. We have thus a rate of over 5.65 per cent.
Under such a system the city is supplying capital to
an association which pays interest, builds, maintains,
and rents, it is true, but which, at the same time, is
neither more nor less than a monopoly, suppressing all
competition, since it frightens private capital away
from just such investments.

Conclusions.

1. The laws concerning unsanitary buildings are a
new violation of the right of property.

2. The establishment of sanitary lists is designed
to keep diseased inmates out of these buildings. But,
in order to circumvent such regulations, proprietors
will contrive to make all prospective tenants pass be-
fore a special examining health board.

3. Sanitary statistics of apartments belonging to
municipalities are of no value, because the towns may
choose their tenants.

4. We see the London County Council dispossess-
ing 45,000 people and lodging 51,000. These latter
are seldom or never the same people, and, therefore,

171

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

between the destruction and construction of houses,
the unhappy tenants have found themselves housed
under no better conditions than before.

5. Those cities which buy real estate increase the
price of that which remains; consequently they are
helping to achieve such an end. In constructing
houses at all they are withdrawing this branch of
industry beyond the reach of private enterprise, and,
while they are driving individuals out of business by
their competition, they are showing themselves inca-
pable of providing for the needs that they are pre-
tending to care for. In reality they are working in the
interest of higher rents.

6. Then such cities are practically subsidizing asso-
ciations more or less financial and philanthropic.
These are frequently granted special privileges, as in
France under the law of 1894, reinforced by that of
1906. Leon Bourgeois himself described the .results
of such laws as "sporadic." The departmental Com-
mittee on Patronage of Cheap Houses declares that:
"The number of philanthropic associations is unimpor-
tant, and they are not modifying hygienic conditions
in the housing of the workmen of Paris."

7. The law of 1906 has had at least one result:
While philanthropic associations were showing their in-
efficiency individuals and contractors have hesitated to
invest capital in the construction of small houses, fear-
ing to see their property decrease in value by reason
of the competition of privileged associations or of the
city.

8. Statistics prove the conclusions above drawn.

173

HOUSING OF THE WORKING CLASSES

The excess of buildings constructed in Paris over
buildings demolished has been :

From 1901 to 1905, 43,475-^5=8,695 per year
1906101910,33,845-^5=6,769 " "

Or a difference between the two periods of at least
22 per cent.

The following table applies to tenements of 500
francs per year and under. These buildings are not
taxed.

Number of Number of

Buildings Buildings Excess

Constructed Demolished

From 1901-1905 37,159 12,243 24,916

I906-I910 28,792 11,605 17,187

Or at least 31 per cent.

As a matter of fact the housing crisis in Paris has
been provoked by legislative and municipal inter-
vention.

9. On the nth day of July (1912) the Chamber
of Deputies passed a resolution modifying the law of
1906 concerning cheap lodgings. In this law there is
no mention of construction and direct public manage-
ment by municipalities. Nevertheless, the Journal
OMciel, of July 30, 1912, duly proclaimed the law as
authorizing the city of Paris to borrow 200,000,000
francs ($38,000,000), in order to facilitate "the con-
struction of cheap houses, or to acquire and make sani-
tary buildings already existing." The law as modi-
fied was placed on the statute books December i, 1912.

In part compensation for this enormous outlay the
prefect of the Seine proposed to levy taxes to the

173

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

amount of 11,000,000 francs ($2,200,000) upon ten-
ants, owners, and billboards. He has been compelled
to abandon the scheme, but meanwhile necessary work
on the city streets has been at a standstill.^

^ Since the foregoing statement was made, the project has
again been advanced and has been incorporated in the budget
of 1914.

174

CHAPTER XV

GOVERNMENT CONTROL OF FOOD SUPPLIES

Public Control of the Sale of Fish, Potatoes and Apples in
Swiss Towns. — Eighteen Communes. — Losses. — Nega-
tive Results. — Competition with Private Business. —
Municipal Slaughter House at Denain, France. — Ex-
periment at Montpellier. — Three German Slaughter
Houses. — Four Slaughter Houses at Vienna. — The Mu-
nicipal Oven at Udine. — The Verona Fish Market.

To a questionnaire sent out to Swiss towns by
Edgar Milhaud concerning markets operated by
them ^ 74 towns responded ; 33 returned purely nega-
tive answers; 41 have made some headway against
the high cost of Hving; Glarus has leased a fish mar-
ket to a merchant who has been authorized to raise
his price from 10 to 20 centimes (2 cents to 4 cents)
a pound above cost. Oerlikon had given to certain
families the right to reductions of from 10 to 20 per
cent, from all retail dealers, at the expense of the
commune. In 1908 Romanshorn opened a public fish
market: "No gains and few losses." Saint-Imier,
Herisau, Rorschach, Schafifhausen have renounced
similar attempts. Thun has leased a fish market.

At Saint Gall the sale of fish yields several hun-
dreds of francs profit to the city, and has lowered
^Les Annates de la Regie Diricte, Feb. -April, 1912.

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

the price of fish in the private market. The market
is patronized, however, only by wealthy families or
those in easy circumstances.

Zurich, three years ago, entrusted the sale of sea
fish to a cooperative society, the Zurich Lebensmittel-
verein; the fish were sold at cost, plus a percentage to
cover expenses. The administrative council of the
society declared that "the attempts made to accustom
the Swiss population to the use of fish food must be
regarded as having failed." Zurich then organized
cooking classes. The results of this latter experiment
are not yet known.

Zug has established a municipal slaughter house.
Freiburg bought and sold, in the autumn of 19 lo and
the spring of 191 1, 193,000 kilos (474,600 lbs.) of
potatoes, at a loss of 2,833 francs ($538). Lucerne,
in 191 1, sold 13 carloads of potatoes, 4 carloads of
apples, and 2 carloads of carrots, for cash. The
shipping costs were met by the town. In addition
43,750 kilos (96,250 lbs.) of coke were sold by the
city. The undertaking ultimately resulted in a loss of
2,842 francs. In any event, the authorities of Lucerne
can hardly be accused of supplying over-substantial
nourishment to their fellow-citizens !

The town of Saint Gall caused vegetables to be
sold by a cooperative society at cost price f.o.b. Saint
Gall at the receiving point (the railroad station). The
city paid the difference, which amounted to 400 francs
a month. The sale was limited to "that part of the
public without income." The total sales amounted to
only 1,700 francs, the expenses to 6,131 francs, and

176

GOVERNMENT C6NTR0T. OF FOOD SUPPLIES

the attempt lasted only from the first of November,

1911, to. February 29, 1912.

During the winter months 1910-1911 and 191 1-

19 12, Bern undertook to purchase potatoes at whole-
sale and to sell them at retail. In the latter year,
it added the sale of white cabbages. As a matter of
course the experiment resulted in losses.

Lausanne, during several days in 19 10, sold po-
tatoes with a profit of 230 francs 15 centimes,
and distributed a balance of 1,340 kilos (2,948 lbs.)
gratis.

In 1911-1912 Zurich sold 550 kilos (1,210 lbs.)
of potatoes at a loss of 901 francs 25 centimes which
was reduced to 569 francs, following a reduction in
the freight costs of ^^2 francs 25 centimes made by
the Federal railways. "A reduction of the freight
rates has been granted for the transportation of food
supplies from October i, 191 1, to May 31, 1912, if the
supplies are to be utilized for the public good."

Anybody who ships potatoes ships them for the
public benefit since they are destined to provide food
for those who buy them. This reduction, therefore,
simply gave a subsidy to municipalities as against in-
dividual merchants. The figures that I have just re-
produced prove that, if the Swiss, in order to live,
had been forced to rely upon the municipality for
their food in 1910-1911, they would all be dead of
starvation.

As a matter of fact, 18 communes have made at-
tempts at public regulation of food supplies, in order
to combat the high cost of living. These are : Brugg
(3,000 inhabitants) ; Weinfelden (4,000) ; Baden

m.

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

(6,050); Grenchen (5,202); Romanshorn (6,000);
Thun (6,030) ; Herisau (13,853) ; Le Locle (13,197) ;
Rorschach (13,481); Schaffhausen (17,148); Frei-
burg (20,300) ; La Chaux-de-Fonds (39,497) ; Lu-
cerne (38,467) ; Saint Gall (35,000); Basle (129,-
600); Bern (78,500); Lausanne (59,327); Zurich
(180,000).

Milhaud concludes his article with this enthusiastic
statement :

"As a result of these public services we have remarked
the following cost reductions: Potatoes, from 12 per
cent, to 24 per cent.; fuel, 15 per cent, to 50 per cent.;
fish, 30 per cent, to 50 per cent."

Or in other words free competition is making a los-
ing fight against public operation, and Edgard Milhaud
considers this a most desirable state of affairs.

If the custom of providing government food should
ever become general, it would be necessary for an
individual to have great courage in order to engage
in any similar undertaking in view of the prospect of
being undersold by the municipality. The town can
lose with impunity; the taxpayers will make up the
loss. On the other hand, loss to a merchant means
his whole financial standing in the community and
that of those who may have placed confidence in him,
all of whom have a right not to anticipate such dis-
turbing factors as result from the intervention of
municipalities turned merchants of potatoes, apples,
cabbages, carrots, and fish.

The towns concerned would answer that their
action was only one form of philanthropy. As a mat-

178

GOVERNMENT CONTROL OF FOOD SUPPLIES

ter of fact, several of them did limit their sales to
the poor. Others, however, did not take this precau-
tion, and, in the majority of cases, they did not seek
any justification for the measures they took.

I do not believe that the results of this investigation
would encourage very many towns to follow the ex-
ample of the 1 8 Swiss communes. They are such that
it is not even necessary to furnish further arguments
for an amendment to the law of 1884 prohibiting
municipalities from going into business.

In 191 1 there were several attempts in France to
regulate the food supply. The mayor of Denain, M.
Selle, opened a municipal slaughter house. Cattle
decked with ribbons were conducted there solemnly
to the tune of the "Internationale." At the end of one
week the undertaking developed the following fig-
ures (in francs) :

Expenses

Purchase of animals i7>4S3-32

Management and inspection of animals 1,011.36

Total 18,464.68

Receipts

Sale of meat 15700.25

Sale of skins i,36S-Si

Miscellaneous receipts I7i-S5

Total 17,237.31

Deficit in 7 days 1,227.37

The mayor called a halt. The indignant populace,
whom he had promised to feed below cost, broke into
his house, from which he managed to escape under

179

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

the protection of the police. Thereafter neither the
mayoralty nor the municipal council knew him more.

At Montpellier an attempt at a municipal slaughter
house was made, which resulted in a loss of 6,000
francs.

Edgard Milhaud, who sees all attempts at public
ownership through rose-colored glasses,^ has declared
that at Eberwald, Thionville, and Freiburg-im-Breis-
gau the attempts at municipalizing a slaughter house
were successful. According to the director of the
abattoir of Freiburg, M. Metz, the experiment, which
took place in 1895, was only temporary, and a burden
while it lasted. The enormous waste, which may and
does occur in such enterprises, renders management
very difificult.

At Thionville experiments were made with pork in
order to force the butchers to lower their prices. "The
meager profits realized were divided between two old
butchers who had been entrusted with the purchase,
slaughter and sale of the meat." In 1905, at Vienna,
four municipal abattoirs were established, which dis-
appeared after a short period.^

All these undertakings are direct attacks on com-
mercial freedom. In Italy * such attacks are made
without scruple. Udine opened a municipal oven in
order to ruin the existing bakeries. Verona sells fish
to the injury of other fish merchants.

^ Annales de la Regie Directe, 1908.

'The Revue Bleue: La Municipalisation de la Boucherie, by
Henri Martel, director of the Veterinary Service of the Prefec-
ture of Police.

• See Book 4, The State, a Dishonest Man.

180

CHAPTER XVI

VICTIMS OF GOVERNMENT OWNERSHIP

The Mayor of Elbeuf, M. Mouchel, and Gas Service. — The
Mayor of Milwaukee.

A high school professor of Elbeuf, M. Mouchel,
afterward mayor of that city for 17 years, and finally
deputy, was attacked by the municipalization mania.
He municipalized water, electricity, gas, the col-
lection and disposal of garbage, and the burial of
the dead. February 28, 191 1, there appeared in the
Depeche de Rouen a highly eulogistic article extolling
his work. On October 15 of the same year the mayor
was obliged to confess that his attempts at municipali-
zation were causing a deficit of 180,000 francs ($34,-
200) in a budget of 800,000 francs ($152,000). A
sum of 250,000 francs ($47,500) would be necessary
to cover the losses.

After confessing his delusions and deceptions be-
fore a meeting of the municipal council M. Mouchel
committed suicide in the cellar of the town hall.

The serenity of the Socialist journals was scarcely
rippled by such an occurrence. L'Humanite remarked :
"It will be found that the municipal operation of gas
will not have cost a sou more nor less than private
operation." Even if that statement were true it would
have been bad business.

181

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

But the partisans of government and municipal
ownership are incorrigible. "What if there are
losses," they say; "the citizens have been gainers."
Not as taxpayers, that is certain.

As for the United States the disorder and waste
of its municipal administrations are notorious, and
development of public operation has certainly not les-
sened them.

In Milwaukee, a city inhabited almost exclusively
by Germans, municipal Socialism has been a very
costly proposition. Before the city had experimented
with a single municipal undertaking the annual normal
increase of the budget was $250,000. Beginning with
1909 it has increased $1,000,000 in two years. At the
April elections, 19 12, the Socialist ticket was defeated
by a majority of 13,000 and Mayor Seidel prosecuted.

A new Bureau of Eihciency and Economy, costing
$20,000 a year, has been organized, but it has thus far
failed to make any report.^

^Journal of Commerce, New York, December 22, 191 1.

182

CHAPTER XVII

CHARGES, DEBTS AND CREDIT

The Profits of British Financial Enterprises for the Period
1893-1898. — 1898-1902. — Report for 1907; 1902-1906. —
An Annual Profit of 6s 3d ($1.50) per 100 Pounds. —
Financial Situation on March 31, 191 1, of 2,500 Local
Governments. — Substituting Monopolies for Taxation.
— Relation Between Local Taxation and Appropria-
tions, los 7d ($2.54) per 100 Pounds. — Increase of
Local Taxes. — Increase of Loans. — Decline of Credit. —
Complaint of a Citizen of Birmingham. — Profit on Un-
dertakings and the Cost of Loans. — Conclusions of
Major Darwin. — Credit of German Local Governments.

Let US now take up the question of charges, debts,
and credit, in relation to British local enterprises.

The first parliamentary report on municipal under-
takings, which appears under the title of Municipal
Corporations' Reproductive Undertakings, dates from
1899. It includes accounts of 265 towns of England
and Wales for a period of five years, ending March,
1898. The financial results indicated are shown in
the following table:

Pounds Sterling

Capital invested 88,152,000

Annual net profit; depreciation deducted. . . 370.000

The second document dates from 1903. It is more
comprehensive. The Municipal Year Book of 1912

183

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

reproduces it in its entirety. It gives the results of
the undertakings of 299 municipalities out of 317 —
not including London — for a period of four years,
or from 1898 to 1902.

Pounds Sterling

Capital invested 121,172,000

Net annual profit; depreciation deducted. .. . 378,000

An apparent profit of .312 per cent, is thus indi-
cated.

In 1907 the Local Government Board published a
supplementary statement, showing the results obtained
by 192 municipalities out of 324 in England and Wales
during the year 1904-1905.

Pounds Sterling

Profits in aid of taxes 898,742

Deficits covered by taxes 242,472

Municipal Trading Returns (No. 171, 1909) gives
statistics only regarding the work of the London
County Council, the City Corporation, the London
boroughs, and 43 municipalities in England and Scot-
land for the four years from 1902- 1906.

Mr. J. H. Schooling, the celebrated statistician, has
demonstrated that all the municipal enterprises taken
together show, for the period 1898- 1902, an annual
profit of 6s 2,d ($1.50) per 100 pounds sterling of
capital invested. He adds, however, that, if the de-
preciation of roadbeds, equipment, etc., of the various
undertakings was taken care of as it would be in pri-
vate business normally managed, the annual loss would
be 5,500,000 pounds sterling ($26,785,000), or, in
other words, £4 10.5 yd ($22) on evety 100 pounds.

184

CHARGES^ DEBTS AND CREDIT

Among the sources of profits are reckoned the sums
collected from private businesses. These sums are
very large in the case of some municipalities, but they
cannot legitimately be called profits from municipal
enterprises.^

The Local Government Board has published a state-
ment of the receipts, expenses, and local loans in
England and Wales for the year 1910-1911. The
number of local authorities included in this work is
2,500, representing about one-tenth of the local gov-
ernments mentioned in the local taxation returns for
the same districts. The financial situation, on March
31, 191 1, of these 2,500 local governments was:

Pounds Sterling

Receipts from all sources except loans. . . . 122,953,000

Expenses, except capital expenses 122,082,000

Receipts from loans 16,137,000

Capital expenses 15,300,000

Total debt at the end of the year 410,695,000

Sum to the credit of sinking funds and

the like 21,198,500

The debt of these 2,500 local governments reached,
then, the enormous figure of £410,695,000 ($2,000,-
094,000). The expenses are more than £137,382,000
($668,850,000). Of the £122,953,000 ($598,780,000)
of receipts, local taxation accounts for £64,004,000
($311,699,500) and grants from the exchequer (in-
cluding the local share of license fees) for £21,073,000

^Fortnightly Review, August, 1906: Lord Avebury, On Mu-
nicipal and National Trading, page 68.

185

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

($102,625,510), giving a total of £85,077,000 ($414.-
325,000).

The apologists for municipal enterprises give the
impression that such undertakings may be substituted
for taxes, with no apparent perception of the fact
that, if municipal enterprises were to replace taxation,
by reason of their innately fiscal character they would
come to weigh heavily on the consumers. The concep-
tion of substituting municipal enterprises for a treas-
ury is, therefore, only a delusion.

Local government undertakings have, in some in-
stances, yielded profits which have relieved local taxa-
tion. But in others they have created deficits which
are met only with the help of taxes.

In 1910-1911 the total amount contributed in aid of
taxes on gas, electricity, ports, docks, jetties, canals,
quays, tramways, light railways, and waterworks un-
dertakings was £1,320,000 ($6,428,400), of which
£1,203,000 ($5,858,600) came from town councils.

The total amount of tax funds paid out tO' provide
for deficits on the same undertakings was £971,000
($4,728,800), of which £631,000 ($3,073,000) was
provided by town councils.

Pounds sterling

Surplus 1,320,000

Deficit 971,000

349,000

Thus, the reduction of local taxation effected by
profits from local enterprises amounted to £349,000
($1,700,000), or, as against the £64,000,000 ($311,-
680,000) of local taxes and the £23,000,000 ($112,-

186

CHARGES, DEBTS AND CREDIT

000,000) furnished by the exchequer to 0.41 per cent.,
or less than one-half of i per cent. These figures are
a sufficient answer to those partisans of government
ownership who are continually reiterating that ex-
pense may be incurred with impunity because gov-
ernment monopolies will pay for them. And, more-
over, receipts from ports, jetties, quays, and canals,
which are not industrial operations properly so-
called, are included in these figures.

Moreover to the loans previously noted as granted
to local governments, £23,210,000 ($113,033,000)
should be added for the Port of London; £25,720,000
($125,256,400) for the Mersey Docks and Harbor
Board; £49,529,000 ($241,236,000) for the Metro-
politan Water Board; more than £14,692,000 ($71,-
550,000) for ports, docks, quays, etc., or a total of
£129,288,000 ($625,795,000). The taxable value of
all this property was £217,180,000 ($1,057,667,000),
from which must be deducted, however, £1,737,000
($8,459,000) representing government property,
which, in lieu of taxes, pays an equivalent sum under
the name of "contributions."

The following figures show the total local tax dur-
ing the three years 1908- 19 11 :

Year As^essablf VaL Per Inhabitant

s d £ s d

1910-1911 6 4 I IS 9

1909-1910 6 2^ I 13 I ,

1908-1909 6 IJ4 I 14 6

The pound sterling is 20 shillings. The tax of
1910-1911 represents then more than 30 per cent, of
the assessed value of the taxable property just listed.

187

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

Municipal enterprises, far from having relieved the
taxpayers, have not prevented local taxes from soar-
ing higher in 1910-1911 than they had ever done be-
fore.

Municipal enterprises make loans necessary, and
the increase of loans involves loss of credit.

Since Dec. 1902
The Highest
Quotations

Metropolitan Cons, stock 3^4% 109

Metropolitan Cons, stock 3%.. 102
Metropolitan Cons, stock 2^^% 9114

Belfast 3% (I9S3-8) 94^

Birmingham 2^% 88^

Brighton 3% (1933-53) 92

Glasgow 354% 11654

Glasgow gas annuities 295^^

Huddersfield 3J4% (1934) .... 106^

Hull 3^% uoyi

Leeds 163

Leicester 3^% 108

Liverpool 3^% I2ij4

Manchester 4% 132

Newcastle-on-Tyne 354% .... 107 J^

Plymouth 3% 97

Nottingham 3% 100

Portsmouth 35^% lOSJ^

Reading 314% 112^

Sheffield 2j^% 82

Southampton 3j4% ,... ioij4

Swansea 3%% mJi

The Birmingham Daily Mail, of May 24, 19 11, pub-
lished the letter of a correspondent, who says :

"The town made last year a profit of £132,174 ($643,-
687), from which must be deducted a loss of £57,091

188

Quotation for July ao,

1912

Lowest

Highest

99 J4

100^

87

88

68/2

69^

75

75

77

81

83

99M

236J4

95

96

94

96

134

136

93

95

98^

9954

III

113

94

96

84

86

36

88

96

98

94

96

69

71

92

94

93

95

CHARGES^ DEBTS AND CREDIT

($278,033). The citizens of Birmingham have loaned to
the city £12,500,000 ($60,875,000), on which they lose
all their taxes and receive in turn about i6o,ooo ($292,-
200), or less than 0.45 per cent., whereas if they (the
municipal undertakings) were paying 5 per cent, they
would yield £650,000 ($3,165,500)."

Hilaire Belloc, during a debate at Memorial Hall,
in London, with Ramsay McDonald, the president of
the Labor Party in Parliament, said :

"Municipal enterprises have been established by means
of loans contracted with capitalists to whom the various
local governments offered returns which these undertak-
ings either did or did not furnish. The result has been
that municipal undertakings have been bringing in about
1.8 per cent., while 3.2 per cent, interest was being paid
out. The debt has been increasing. There has been
more and more need of capitalists who have refused to
consent to new loans seeing that the debts were growing
in an alarming manner." (Labor Leader, May 12, 1911.)

Major Darwin, in his objective study of municipal
industries, reaches the following conclusion:

"Municipalities can manage markets, public baths,
slaughter houses, cemeteries, and waterworks. Munici-
palities may own tramways. But all these enterprises
ought to be operated privately. Gas, electricity, tram-
ways, the telephone, ought to remain in the hands of
private individuals."

He further suggests that municipalities be forbidden
to manufacture electrical apparatus ; to own houses ; to

189

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

engage in construction without contractors. Munici-
palities should be forbidden to attempt to make money,
and their borrowing power ought to be restricted.^

In the United States the debt limit for municipal-
ities is : lo per cent, of the taxable value in New
York, 5 per cent, in many of the western states, and
2 per cent, in others.

This year (1913) the German cities are being much
hampered for lack of credit. A loan sought by the
city of Carlsruhe has had to be indefinitely postponed
The smaller and medium sized municipalities, in the
absence of funds, have been obliged to postpone neces-
sary work.

^ Constitutional Amendments to be added to the Declaration
of Rights.

190

CHAPTER XVIII
FICTITIOUS PROFITS

Railway Charges. — Local Taxes on Prussian and English
Railways. — The Victorian State Coal Mine and the
Government Railways. — New Zealand. — Profits of the
National Printing Office. — The Insurance Monopoly.

Private enterprises are subject to certain charges
from which state undertakings are exempt. These
exemptions create an illusion of profit. Local taxes
paid by the government railroads in Prussia amount
to £750,000 ($3,652,500), while similar taxes, paid
by the railways of the United Kingdom, having nearly
the same length of line, reach £5,000,000 ($24,350,-
000). If both were taxed at the same rate the profit
on the government railroads in Prussia would be pro-
portionally reduced.^

Further, the profits of one state undertaking are
frequently obtained only at the expense of another.
For example, the Victorian state coal mine, in Aus-
tralia, is called a success ; but the director of railroads,
Mr. Fitzpatrick, complains of losing 45,000,000 francs
($8,550,000) through being forced to use government
coal.^

At the end of 19 12 it was announced that the New

' Edwin A. Pratt, Railways and Nationalization, page 3.
' For New Zealand see Book 2, Chapter VII.

191

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

South Wales government was prepared to nationalize
the iron industry, but with the proviso that the Federal
government must stand ready to order the material for
the new railroads from its mills. "Peter is being
robbed to pay Paul. But such are the methods of pre-
senting the accounts that the public does not perceive
this fact," says Liberty and Progress, Melbourne, May
25, 1911.

The National Printing Office of France undertakes
to do outside work for editors ; at the same time it has
a monopoly of the government printing. It farms out
its work to private printers, and it adds a charge of its
own to the original cost when the work is delivered to
the departments, which have no choice but to have
their printing done by government printers. In this
connection the inspector of the finances, M. Bizot, has
pointed out the following facts :

"The National Printing Office furnishes the forms for
telegrams. It has contracted with a private company to
manufacture and deliver these forms to the aforesaid
printing office, cut, folded, perforated, gummed, and
turned at a cost of 67 centimes per 1,000 forms in pads
of 100, and 50 centimes per 1,000 forms when delivered
as loose sheets. Up to 1911 the National Printing Office
invoiced these supplies to the postoffice at a cost of 2 f r.
and I fr. 62, respectively, instead of 67 and 50 centimes.
In 1910 this addition of more than 200 per cent, repre-
sented a profit to the National Printing Office of 82,000
francs."

And who was paying this profit to the National
Printing Office? Why, the Postoffice department, or,

192

FICTITIOUS PROFITS

in other words, the government, by submitting to an
overcharge of 82,000 francs.

The law of April 4, 19 12, has ordered that the in-
surance monopoly in Italy shall be exempt from postal
charges, and that its profits shall not be subject to
the income tax.

These exemptions will be accounted on the credit
side of the insurance monopoly. They ought to be
deducted from the government resources.

193

CHAPTER XIX
FISCAL MONOPOLIES

1. Tobacco Monopoly in France. — Treasury Profits. — Losses

to Agriculture, Industry and Commerce. — Use of Na-
tional vs. Maryland Tobacco. — Opposition of the Con-
sumer. — The Advantage. — Delusions Regarding Regula-
tion.

2. The Match Monopoly in France. — No Amortization. —

Bookkeeping Artifices.

3. Fiscal Profits.

I. It is customary to speak of the results of the
tobacco monopoly in France, in force since 181 1, as
marvelous.

The income appears truly enormous. In 181 5 it
was 32,123,000 francs; in 1830, 46,782,000 francs; in
1850, 88,915,000 francs; in 1869, 197,210,000 francs;
in 1890, 305,918,000 francs; in 1900, 338,872,000
francs; in 1910, 407,330,000 francs.

Without doubt this is a dazzling result from the
fiscal point of view, and it also proves that the num-
ber of Frenchmen who use tobacco has increased more
rapidly than the population.

But there are other ways for a government to make
money out of tobacco than by monopolizing the sale
of it. In 1908-1909 the United Kingdom realized
£13,328,000 upon tobacco, that is to say, 333,450,000
francs, or only 74,000,000 francs ($14,060,000) less
than our monopoly has yielded us.

194

FISCAL MONOPOLIES

We see what this monopoly has contributed to the
Treasury ; but we do not see the losses occasioned by it
to French agriculture and industry. It is a privilege
to be allowed to cultivate tobacco. I have heard a
deputy say: "I will guarantee that not a single one
of my political adversaries will cultivate one acre of
tobacco." Possibly he was boasting; but that a deputy
could use such language is sufficient to prove just how
far official authority is capable of being abused.

In any case there are only 27 districts permitted to
cultivate tobacco, and these districts are situated in
all parts of France, from the North to Landes, from
Ile-et-Vilaine to the Var. Therefore, climatic rea-
sons have not determined these concessions, which,
as a matter of fact, are wholly dependent upon politics.
The number of hectares authorized was 17,955 (44)88o
acres) in 1909, and 18,005 hectares (45,000 acres) in
1910. In the first year mentioned 15,037 hectares
(37,593 acres) out of a possible 17,955 hectares
(44,880 acres), and in the second year, 14,683 hec-
tares (36,708 acres) out of a possible 18,005 hectares
(45,000 acres) were cultivated. The number of li-
censes was, respectively, 48,395 and 47,283.

The quantity of tobacco bought was 23,134,000 kg.
(50,894,800 lbs.) in 1909, averaging 23,122,000
francs, and, in 19 10, 21,034,000 kg. (46,274,800 lbs.),

averaging 22,085,000 francs.

Fr. C.

Value of domestic tobacco estimated at. .23,226,874 33

Foreign tobacco at 31,825,437 95

Algerian tobacco at 2,038,054 85

Confiscated tobacco taken from dealers 144,772 i5

57,235.139 28

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

But let US look at the monopoly from a somewhat
different standpoint. To-day we may buy scaferlati.
Scaferlati is a raw product. Consequently you may
imagine that you have the right to use it to manufac-
ture cigarettes. In fact the Court of Cassation ^ has
made a ruling to that effect. Nothing of the kind.
The department of Indirect Taxes (Administration
des Contributions Indirectes) intervenes, and says to
you: "You, a simple individual, cannot manufacture
cigarettes, because I have reserved for myself a mo-
nopoly of this article."

The rival claims of the various parties interested in
the sale of tobacco became the subject of a lively dis-
cussion between the tobacco monopoly and the Court
of Cassation. The Finance Law of 1895 finally put
an end to the altercation by justifying the exorbitant
pretensions of the monopoly. It decided that, al-
though you can make cigarettes for your own personal
use with the tobacco that you buy from the govern-
ment, you have not the right to sell these cigarettes to
your neighbor.

On September 17 and 18, 1903, there was another
altogether edifying discussion — this time in the Senate
— upon the manner in which the state treats the con-
sumer. Certain senators were anxious to prevent the
French smoker from smoking anything but the na-
tional tobacco. The Minister of Finance, M. Rouvier,
opposed this restriction, but at the same time he pro-
ceeded to demonstrate how cavalierly the state may
treat the consumer who has no other source of appeal:

In 1900, he declared, ordinary scaferlati had
' The highest judicial court of France.

196

FISCAL MONOPOLIES

been composed of 52 per cent, native tobacco
and 48 per cent, foreign tobacco. In 1901 the
proportion was changed to 54 per cent, native to-
bacco and 46 per cent, foreign tobacco. The con-
sumption decreased 40,000 kg. (88,000 lbs.).

What would a private company have done under
similar circumstances? It would have restored the
former proportion, as a matter of cour$e.

What did the government do? It increased the
proportion of native tobacco.

In 1902 scaferlati was composed of 63 per cent,
native tobacco and 37 per cent, foreign tobacco.

"The number of complaints increased," added the
minister placidly.

But what did the minister do about it? Was any
attempt made to satisfy the consumer? Did the de-
partment restore the previous proportions? Not at
all. The consumer was induced to see the error of his
complaints in another way. Smokers had gradually
abandoned the degenerate scaferlati for Maryland to-
bacco. Therefore, the government conceived the
happy idea of increasing the price of Maryland to-
bacco. That would teach the smoker to be content
with the government tobacco. Strange that MM.
Gomot and Ournac should discover that this propor-
tion of native tobacco was still unsatisfactory !

The example quoted above only serves to prove
once more the truth of the following general
law:

Under conditions of free competition the producer
has more need of the consumer than the consumer
of the producer, and it is necessary that the latter give

197

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

the former the maximum of service at a minimum,
cost. Under monopolistic conditions the consumer
is obliged to submit to the exigencies of the pro-
ducer.

If the consumer wishes to retaliate he has no other
recourse than that species of strike called abstention,
which for him spells privation. As the case of the
Maryland tobacco proves, the smoker cannot even
resort to substituting one product for another. If he
makes the attempt he is penalized.

Beginning with May 14, 19 10, M. Cochery raised
the rates on high-grade tobacco and certain tobaccos
especially popular at the time. As a result of this
measure an increase in the annual receipts of 18,000,-
000 francs was anticipated, and for 1910, 13,500,000
francs. The increase was but 10,044,000 francs, or
only 998,000 francs more than the average increase
for the previous four years. The detailed report of
the sales shows that the public had abandoned the use
of the high-grade tobaccos, and was contenting itself
with scaferlati, the price of which remained the same.
Probably it was not without discreet murmurs that
the public resigned itself to this change of habit; but
at least the passive and silent strife had some efifect.
The decree of June 26, 191 1, reestablished the former
rates on brands the abandonment of which would make
serious inroads upon the profits of the monopoly —
that is to say, the more expensive scaferlati and the
more popular cigarettes made from it.

But now let us suppose that this monopoly on to-
bacco in France did not exist. We French are ex-

198

FISCAL MONOPOLIES

tremely skilful in raising products of a refined savor,
and we know how to prepare them in the most attrac-
tive manner. Let us imagine, then, that the cultivation
and sale of tobacco were free. There would be tens
of thousands of hectares under cultivation in those
districts where the soil is best adapted for it. We
would see manufacturers experimenting with skilful
blends of native and foreign tobaccos suitable for
exportation. We would see in the great cities large
and imposing shops for the sale of tobacco like those
seen abroad.

The department boasts of the excellence of its prod-
ucts. The foreigner does not share this opinion, be-
cause exportation is almost nil — 3,547,000 francs
($673,930) in 1 9 ID. Yet attempts are made to ex-
port the home product, because included in the above
figure is the sum of 83,718 francs ($15,906) for
commissions paid to special export agents.

If the monopoly contributes 405,000,000 francs
($76,950,000) to the government on the one hand,
it is certainly causing a loss of many hundreds of mil-
lions annually to French agriculture, industry and
commerce on the other hand.

Moreover, but little regard is paid to the net cost
of manufacture and sale. As a monopoly the state
has, of course, a wide margin.

The books of the monopoly carry a kind of indus-
trial account, entitled Capital de la Regie. On De-
cember 31, 1910, the amount was figured at 153,841,-
482 francs 07 ($29,229,881). Nothing more definite
was given. The sum was distributed thus :

199

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

Fr. C.

Tobaccos 99,599,224 07

Buildings 42,146,962

Machines 6,219,730

Utensils, supplies, furnishings 5,875,566

Total 153,841,482 07

This table is supplemented by the following:

Relation of the Department to the Treasury.

On December 31, 1910, the department owed the Treasury:

Fr. C.

Capital estimated at 153,841,482 07

Balance to be collected on sales 96,984 44

Total 153,938,466 51

But the department had still to pay on

account of expenditures 6,504,885 75

Finally it was indebted to the Treasury

in the amount of i47,433,S8o 76

But what can the Treasury do with 42,000,000
francs in buildings and 6,000,000 francs in machinery,
etc. ? Surely there is no indication here of an indus-
trial budget.

The tobacco monopoly bought nearly 32,000,000
francs ($6,080,000) of tobacco abroad in 1910. To-
bacco experts visit the places of production, meet at
Bremen, and buy tobacco. They are prepared for
the business by the Polytechnic Institute. It is the
easier for me to say what I am about to say since the
probity of these agents has never been brought into
question. But what control can be exercised by any
legislative body over the millions of francs' worth of
tobacco which thus passes from one hand to another?

300

FISCAL MONOPOLIES

What possible chance is there of fixing individual
responsibility ?

In fact it cannot be too strongly asserted that
legislators have yet to discover how to interfere effec-
tively in trading operations carried on by the state.

2. The accounts devoted to the materials and money
sunk in the operation of the chemical match monopoly
for 1910 give us at least a certain amount of infor-
mation. For example, the amount of capital controlled
by the department on December 31, 19 10, is figured at
10,633,635 francs 92, and is distributed as follows :

Fr. C.

10,697,036,288 finished matches 2,347,805 40

18,883,104,633 unfinished matches 672,631 53

Other materials and products 234,266 99

Land and buildings 4,150,301

Machines, apparatus and other equip-
ment 2,531,184

Miscellaneous supplies 727,447

Total 10,663,635 92

Compared with the corresponding fig-
ures for Dec. 31, 1909, the above fig-
ures represent an increase in capital
of 525,111 OS

Distributed thus:

Finished matches 3S3,7o8 07

Unfinished matches 20,945 64

Machines, apparatus, etc 301,4^7

Supplies and miscellaneous materials 112,458 34

788,599 05
Reductions

Buildings and lands 263,488

Net increase S2S,"i 05

201

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

Profits
The receipts for one year amount to. . 42,435,220 26
The expenses appearing in the budget
amount to 12,333.827 5°

The diflFerence between the receipts and

the expenditures is 30,101,392 76

If we add to this difference the increase

upon the capital of the department,

which has been figured above at.... 525,111 05

We have the profit for the year 1910,

which is 30,626,503 81

The profit for the year 1909 having been 29,832,443 95

We have an increase of 794.059 86

Relation of the Department to the Treasury.
On December 31, 1910, the department owed the Treasury:

Fr. C.

Capital estimated at 10,633,635 92

Balance to be collected on sales for

1910 1,369,770 14

For 1908 73,794 •• 1.443,564 14

Total ' 12,107,200 09

But the department has still to pay on

expenses of the year 1910 1,583,592 22

Its final debt to the Treasury is 10,525,607 84

Many other details are found in the pages which
follow, but there is no trace anywhere of what the
English call "depreciation," that is to say, amortiza-
tion, on either real estate or equipment.

The monopoly buys matches abroad for 3,206,326

francs 04, upon which it pays 671,608 francs 07 cus-

' These figures, which do not agree, are copied from the
official report.

202

FISCAL MONOPOLIES

toms duties, together with 3,008 francs 64 in the way
of incidental expenses, forming a total of 3,880,942
francs 75.

The Minister of Finance collects theoretically 671,-
608 francs 07 from the customhouse upon this
monopoly, and at least an equivalent sum as profit
on the sale of the domestic product. Therefore,
his accounts are just that much short at the end
of the year. Here we have a bookkeeping artifice so
much the more astonishing in that foreign matches
are prohibited and cannot be brought into the country
except by the government.

3. In the case of both tobacco and matches the
term proiit is applied to the difference existing be-
tween receipts and expenditures. But, from the
standpoint of the consumer, this profit is neither more
nor less than a reward of extortion, since con-
sumers are unable to procure at the lowest price the
goods which the monopoly forces upon them. The
word profit is, therefore, altogether a misnomer.

In 1891 a committee of the Chamber of Deputies
suggested to the various ministers that government
employees be allowed to share in the profits of state
operation.

At that time I had under my direction, as an indus-
trial undertaking, the old government railway system.
I answered that there were no profits and that conse-
quently they could not be divided. But would it even
have been possible to give to the employees and labor-
ers connected with the prosperous tobacco and match
industries a share in the "profits resulting from the

203

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

sale of their products"? There are no real profits;
there are fiscal advantages wrung from consumers.

Many of those who demand "industrial accounts"
do it with the hidden hope that the departments of to-
bacco and matches are going to become the property
of the employees concerned in their operation, who
will thereupon enter into contracts with the govern-
ment and thereby ensure for themselves "a share of
the profits." But such profits are, as has been already
said, only the result of extortion, and, therefore, would
inevitably disappear if unsupported by the laws at
present in force.

A fiscal profit should never be mistaken for an
industrial profit.

204

CHAPTER XX

THE ALCOHOL MONOPOLY IN SWITZERLAND AND

RUSSIA

1. Monopolistic Fictions of Emile Alglave. — Monopoly

Rejected in Germany. — No Monopoly in Austria. — An
Experiment in Italy.

2. In Switzerland, the Object of the Monopoly the Aboli-

tion of Ohmgeld Duties. — Neither the Distillation of
Wines nor Stone and Kernel Fruits Affected by the
Monopoly. — Ten per Cent, of the Receipts to Combat
Alcoholism. — A Surprise Vote. — Numa Droz. — The
Electoral Premium on Potatoes. — Restrictions on Sale
in Switzerland. — Fiscal Deception.

3. Russia. — Moujik Forbidden to Drink on Premises. —

Characteristics of the Liquor Traffic. — Increase of
Public Drunkenness. — Declaration of a Moral Purpose.
— Fiscal Success.

I. About thirty years ago fimile Alglave was anx-
ious to establish a monopoly on alcohol in France.

Basing his appeal on authority he said, with magni-
ficent assurance, that France would be the last coun-
try in Europe to adopt such a monopoly, and he re-
proached her with a lack of progressive spirit. He
cited the example of Germany, where, as a matter of
fact, a monopolistic project was submitted to the
Reichstag on February 22, 1886. But despite the in-
tervention of Bismarck, who pointed out the financial

205

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

necessities of the empire and the need for reforming
municipal taxation, the bill was rejected on the 27th
of March, following, by a vote of 181 to 3.

The great distillers supported the project because
the government promised to buy their alcohol at 40
marks, or 10 marks more than it was worth at the
time — a proceeding which would have involved an
outright gift to them of 35,000,000 marks. But, al-
though these particular manufacturers might contem-
plate with satisfaction the immediate profit, the ques-
tion naturally arose as to what would happen if, later,
under various kinds of pressure, the government, in-
stead of having at its head a man like Bismarck, him-
self a prominent distiller, should have statesmen anx-
ious not to arouse any suspicion of favoring these
special interests, and who, moreover, might be in need
of revenues to balance the budget. It was the gen-
eral opinion that such a monopoly would increase the
power of the government, and convert the retailers
into electoral agents. The questions of rectification
and exportation were also debated. Since that hour
the question of an alcohol monopoly has been dead so
far as the Reichstag is concerned.

Before the alcohol monopoly investigating com-
mittee of the French government, in 1887, M. Alglave
expressly declared that Austria had adopted the policy
of monopolizing alcohol. He even gave circumstan-
tial details, such as that the price of a single glass was
fixed at o franc 04; that the commission allowed
the tavern keeper was 10 per cent., etc. He fur-
ther declared that in Austria the measure was not

206

THE ALCOHOL MONOPOLY IN SWITZERLAND AND RUSSIA

a fiscal one, since the budget had a surplus of from
7 to 8 per cent., but purely hygienic. As a matter
of fact the sole support for these statements existed
in the fertile imagination of M. Alglave himself.
There is no alcohol monopoly in Austria.

Finally M. Alglave attempted to invoke the example
of Italy. In 1894, or seven years later than the sitting
of the committee above referred to, the Italian govern-
ment had considered the question, but any really seri-
ous discussion of the proposition was defeated by the
outcry which arose.

Consequently M. Alglave's argument from example
proved to be worth no more than all the others.

Belgium reformed its legislation regarding alcohol
in 1896, but the monopoly proposed by the Socialist
group was rejected without debate. The Belgian
government increased the duties upon alcohol and pro-
hibited the sale of absinthe, but the question of mo-
nopoly has played no other role.

2. Alcohol monopoly is actually found in only two
countries, viz., Switzerland and Russia. Louis Marin,
who, in 1902, as deputy from Var, took up the project
of M. Alglave and presented it to the Chamber of
Deputies, said : "You all know that the monopoly of
alcohol in Switzerland and Russia is managed accord-
ing to the ideas of M. Alglave." I did not know it.
But, if either conforms to the ideas of M. Alglave,
they at least dififer from each other.

The establishment of the Swiss monopoly had for
its principal object the abolition of the ohmgeld duties.

207

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

These were inter-cantonal entrance duties, a species
of internal revenue tax at different rates, upon wine,
cider, beer and alcohol. Established in i6 cantons out
of 22 they had proved a serious hindrance to freedom
of trade and commerce in the Swiss Confederation.
The constitution of 1848 had prohibited any further
increase of them, and, in the negotiations over the
commercial treaty with France in 1864, they had
given rise to grave difficulties. The Federal constitu-
tion of 1874 had ordered their abolition after January
I, 1890.

Article 31 of the constitution guarantees "liberty
of industry and commerce throughout the length and
breadth of the Confederation." Article 32 enumerates
exceptions to the above in the case of "salt, gunpow-
der, entrance duties on wines and other beverages" ;
while the amendment of 1885 adds to this list "the
manufacture and sale of distilled beverages." Article
32 and following gives to the Confederation "the
right of establishing, by legislative act, regulations
governing the manufacture and sale of distilled bev-
erages" ; which declaration, however, is seriously af-
fected by a qualifying clause, the text of which I re-
produce :

"The distillation of wine, of stone and kernel fruits
and their waste, the roots of the gentian, juniper berries,
and other similar materials, is excepted from Federal
regulations governing manufacture and taxation."

This clause was a triumph for the individual distil-
lers of every description — makers of kirsch, bitters,
gin and distillers of wine. The restrictions apply only

208

THE ALCOHOL MONOPOLY IN SWITZERLAND AND RUSSIA

to alcohol derived from amylaceous sources. The sec-
ond paragraph of the above-mentioned article 32 adds
that "trade in non-distilled alcoholic beverages shall
not be subjected to any special tax by the cantons."
The third paragraph of the article declares that "the
net income of the Confederation resulting from native
distillation and the corresponding increase of entrance
duties upon foreign distilled beverages shall be divided
among the cantons in proportion to their population
as established by the most recent Federal census."

The article concludes w^ith the following direction :

"The cantons are expected to employ at least 10 per
cent, of the receipts in combating both the causes and
the effects of alcoholism." Very little attention has
ever been paid to this wholesome bit of advice.

It is to be easily gathered that the object of the
amendment of October 25, 1885, was to assure free
circulation of beverages throughout the Confederation
by suppressing cantonal entrance duties. It is a law
of liberty.

On the other hand, the mere granting to the Con-
federation of "the right to establish, by legislative act,
regulations governing the manufacture and sale of
distilled beverages," certainly does not imply monop-
oly. Numa Droz, then minister of agriculture, was
opposed to monopoly, but favored the suppression of
the ohmgeld duties. If the amendments to the Federal
constitution, submitted to referendum October 25,
1885, did not absolutely forbid the monopoly of alco-
hol they were certainly not intended to pave the way
for it. On the contrary, they provided for a system of
excise duties by which the suppression of the ohmgeld

209

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

duties would be more effectually accomplished than by
a monopoly.

"In the course of the discussion in the chamber I
do not believe that the word monopoly was pronounced
a single time," said Numa Droz in speaking of the
surprise produced when the Department of the In-
terior presented to the Federal council three bills, two
of which proposed a monopoly. Upon his recommen-
dation, and by a vote of 4 against 3, the Federal
council adopted the first bill presented, which pro-
vided for excise duties. The committee of the Na-
tional Council, however, espoused the bill creating a
monopoly. The majority of the Council thereupon
capitulated, on condition that the Confederation would
not itself distill alcohol, and the law was actually
passed December 23, 1886, and approved May 15,
1887, by a referendum vote of 267,000 votes against
138,500.

As the Swiss were the first nation to put into prac-
tice free institutions they have shown themselves ex-
tremely distrustful of this measure. In fact they have
been so anxious to limit their losses that they have
decreed that three- fourths of the alcohol controlled by
the monopoly shall be put on the foreign market, and
only one-fourth sold at home. Nor shall this latter
amount exceed 20,000 hectoliters or 25,700 hundred-
weight a year.^

It was expected that the monopoly would yield a
net profit of 8,840,000 francs, which sum was to be
so divided among the cantons that each should receive
" See Numa Droz, Etudes Sconomiques.

210

THE ALCOHOL MONOPOLY IN SWITZERLAND AND RUSSIA

an amount proportioned to the quantity of alcohol
distilled within its borders.

The following table gives the result for the first
five years : Fr.

1887-1888 S.422,316

1889 4,547,108

1890 6,306,668

1891 6,013,335

1892 5,778,668

Since 1896 the net profit has been distributed among
all the cantons in proportion to their population. The
following figures represent the amounts distributed
from 1906 to 1910: Fr.

1906 6,317,544

1907 6,483,795

1908 5,985,041

1909 5,818,790

1910 6,317,543

Thus we see that the monopoly has never reached
the figure anticipated. During the last five years it
has been 30 per cent, less than what was expected
twenty-five years earlier.

As far as Switzerland is concerned this is not a
disaster. But if the experiment were to be attempted
in France, and its provisions based upon the dreams
of fimile Alglave, who prophesied 1,500,000,000
francs revenue from it, or even upon those of M.
Guillemet, who prophesied 700,000,000 or 800,000,000
francs, a certain deficit of hundreds of millions must
inevitably have been the result.

In France M. Alglave has frequently declared that
the Swiss monopoly was established first and foremost
for hygienic reasons, and not for fiscal gain. That

211

WHERE AND WHY PUBLIC OWNERSHII* HAS FAILED

this is a complete error I have just shown, since the
Swiss monopoly was established for the purpose of
suppressing the ohmgeld duties.

It is true that at first, under the pressure of hygien-
ists, the administration furnished absolutely pure
alcohol. The Swiss, however, accustomed to drinking
schnapps, which provokes a strong irritation of the
throat, demanded that the alcohol provided by the mo-
nopoly should give them the same sensation. The de-
partment was forced to add an impure grade to the
rectified alcohol in order to give the taste of fusel,
without which the monopoly must have gone com-
pletely bankrupt.

To-day the Swiss are content with such rectifica-
tion as the industry which sells the alcohol sees fit to
make.

3. According to Peter the Great, "Russia's one joy
is to drink." However, the people consume little
enough of the more common forms of alcohol; 2,000,-
000 to 4,000,000 hectoliters (53,000,000 to 106,000,-
000 gallons) of wine, 4,000,000 hectoliters of beer,
for a population of more than 130,000,000, or about
three liters (3 quarts) per capita. When the Rus-
sian wishes to indulge in his "one joy" he drinks
brandy.

An alcohol monopoly is not a novelty to him. It
is an institution which dates from 1598. It has
passed through various fortunes. Abolished in
1883, it was reestablished January i, 1895, ^^ the four
provinces of Perm, Orenburg, Samara and Oufa, hav-
ing a joint population of 10,000,000 inhabitants. This

212

THE ALCOHOL MONOPOLY IN SWITZERLAND AND RUSSIA

population is consuming 200,000 hectoliters (5,300,000
gallons) of alcohol, or two liters (2 quarts) per capita,
less than half the consumption in France.

In Russia the people live under a paternal regime.
The emperor is the "little father" of his subjects. He
must provide for their welfare; he must watch over
them and protect them from evil. The Russian peas-
ant, the moujik, has one great fault. Ill nourished, he
loves to drink; and, when he enters a tavern, he de-
mands vodka. This is alcohol brought to 40 degrees
by an addition of water. When he has no more money
with which to buy, he sells his cart, his cattle, his fur-
niture. He even sells his clothes, so that in winter
he would be in danger of dying of cold in the streets
if the police did not look after him.

The emperor of Russia says : "I do not object to
my subjects drinking alcohol. If they did not drink
it irreparable injury would ensue to the finances of
my empire. Only I forbid the moujik to drink it in a
tavern." Consequently the peasant is sold a little
phial of 6, 12 or 60 centiliters, the cost of which is
rigidly proportioned to the contents of the phial. There
is no object, therefore, in buying large quantities at
one time.

Such is the basis upon which the monopoly of alco-
hol in Russia is established. What have been the
practical results? The alcohol shops are kept by offi-
cials who receive fixed salaries of 70, 80 and 100
francs, with a maximum of 150 francs per month.
They have no interest whatever in developing trade.
It is a very honorable position, about one-thirtieth of
these agents being members of the nobility.

213

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

These alcohol shops have certain peculiar character-
istics. They have neither corkscrew, glass, nor chair.
The phial that they sell is sealed with a vignette, and
it is absolutely prohibited to uncork it upon the prem-
ises. The customer enters, pays, and takes the phial
away with him. The shop is in no sense a public
house.

The moujik, once in possession of his bottle, goes
out of the shop. Arriving in the street he finds a street
vendor, who possesses what he has been unable to
find in the shop, namely, a corkscrew and a glass. The
vendor offers him the use of these, with a crust of
bread and a piece of herring. While he uncorks the
magic bottle the moujik eats the crust of bread and the
bit of herring.

But as the poor fellow is afraid of being dis-
turbed by th« police, if he remains too long in the
street, he gulps down the brandy and returns to get
another bottle. The final result is this : Instead of
drinking the liquor under shelter, and more or less
slowly, in a public house, in front of a good stove, as
was formerly the custom, the Russian peasant drinks
in all haste, in the open air, in the street.

I have taken this information from official reports
addressed to the emperor by temperance committees,
which, strangely enough, are frequently headed by
the collectors of indirect taxes (Directeurs des Contri-
butions Indirectes) themselves.

All these reports declare that the present system has
provoked an increase in public drunkenness. In one
city (Ztatooust) alone, from the ist of January to the
i6th of August, 1895, there were 265 cases of public

214

THE ALCOHOL MONOPOLY IN SWITZERLAND AND RUSSIA

drunkenness, compared with 155 during the preceding
period — an increase of 58 per cent. Moreover,
whereas the monopoly is directing its efforts toward
the suppression of drinking upon the premises, all
these temperance committees are united in the desire
to reestablish the former state of affairs under better
conditions. For this reason the attempt has been
made to open to drinkers so-called traktirs, establish-
ments where cakes may be eaten while drinking warm
beverages, but from which alcohol is proscribed. Al-
cohol is also excluded from breweries, therefore the
moujik brings his phial with him and pours the con-
tents into the beer. The efforts of the temperance
committees have also been directed toward bettering
this condition of affairs.

Serge de Witte once declared that the monopoly of
alcohol in Russia had a moral, not a fiscal, aim. To-
day the moral excuse has been abandoned and the fiscal
one openly proclaimed. The receipts from the monop-
oly play too important a role to be tampered with.

As 1 have already stated, from the fiscal point of
view, the monopoly has been a success. In the pre-
liminary budget for 1912-1913 it is estimated at 763,-
925,000 roubles ($393,421,000), in a total budget of
2,900,000,000 roubles ($1,493,500,000). It repre-
sents more than 26 per cent, of the total revenue. In
Russia there are not as many alcoholic drinks as in
France. The vodka of the monopoly may satisfy
the moujik, but it would certainly never satisfy the
majority of Frenchmen.^

'See Appendix "A."

CHAPTER XXI
FINANCIAL DISORDER

1. Parliamentary Control. — Jules Roche.

2. The National Printing Office.

3. The Administration of the Navy. — The Work at

Guerigny.

4. Cost of Naval Construction.

5. Postal Service. — Telegraphs and Telephones.

6. The Telegraph in Great Britain.

7. British Postal Savings Banks.

8. Plans and Regulations of Budgets.

9. Dissimulated Loans.

I. Jules Roche, contemplating the consequences of
the purchase of the Western Railway of France, re-
marked of the whole transaction :

"I am considering only one detail of the plan, namely,
the creation of a special budget of the future system,
with its special debt, its loans, and its special titles.

"Are we to have two public debts in France? A
public debt pure and simple, such as already exists, se-
cured by the general resources of the nation, and another
debt, a new debt, contracted by the state railway, and
consequently a state debt, secured by the same resources
as the present debt, and secured besides, in a supple-
mental fashion, by the railroad system itself ? If not,
the term 'special loans' is without meaning.

216

FINANCIAL DISORDER

"What sort of financial, legal or political idea is this?
Is such a conception financial, legal or political at
all ? Is this bookkeeping ? Here is surely something that
the decree of 1862 did not foresee ! And what would be
the future of such a plan if it were ever adopted by the
great state railways?

"We should shortly have postal loans, telegraph and
telephone loans, match loans, tobacco loans, loans on
coming monopolies, such as alcohol, sugar, insurance,
and petroleum."

At present Socialists are abandoning the Marxian
theory, as they dropped the theories of Fourier, Cabet,
Louis Blanc, Prudhomme, etc. The more progressive
are seeking new theories. They assume that, if private
enterprise is suppressed, states and municipalities will
produce all things necessary to man much more abun-
dantly, and in a much more regular and economic
fashion than private enterprise has succeeded in do-
ing. They have made up their minds that all economic
activity ought to be transformed into public services.
This is their postulate.

But they have neglected to fortify their theories
with facts. Universal experience has proved that,
whatever a state does, it does at a higher cost than
private individuals or groups, and that, far from con-
centrating its attention upon the true objective point,
it always drags in foreign considerations, which ruin
the enterprises of which it has assumed the direction.
Accounts are confused in such a way as to make it next
to impossible to discover either net cost or the true
income. Although sheltered from competition, instead
of being agents of progress, such undertakings foster

217

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

nothing but lethargy; and, while accomplishing so
little themselves they block the way of the more pro-
ductive enterprises of others.

Municipalities move along a straighter path, but the
same defects are apparent in municipal trading opera-
tions that we find in state undertakings. Whence we
may conclude that Municipal Socialism is only another
condemnation of State Socialism.

Yet has Municipal Socialism, down to the present,
at least, abated its energy in the establishment of
public tramways, gas, electric lighting, telephones, water
works and cheap housing? And, since it has failed in
these enterprises, what would be the result of similar
experiments with food supplies, dressing, heating and
otherwise occupying and amusing the people?

The Chamber of Deputies approved article 70 of
the Finance Law of 1912, which created a species of
financial autonomy out of the manufactures of Sevres
porcelain in spite of the sound arguments against the
measure presented by Jules Roche. The result of
such a proceeding would have been a tenth special bud-
get appended to the general budget. If the manu-
facture of Sevres is a government enterprise its ac-
counts should not be separated from the state budget ;
and, furthermore, why separate them from the gen-
eral budget while the manufacture of Gobelin tapestry
remains attached? The article has since disappeared
from the Finance Law.

In our studies of the administration of French
finances we have frequently had occasion to demon-
strate the incapacity of the state to conduct a trading
enterprise, despite the undoubted intelligence of its of-

218

FINANCIAL DISORDER

ficials. Examples abound in the administration of the
principal monopolies. We have shown that they manu-
facture bad matches at high cost, and that those which
come from abroad to eke out our supply are better
and cheaper. Officials in charge of these enterprises
have neither initiative nor responsibility. They are
hemmed in by regulations which do not allow of the
cooperation characteristic of private industry. Re-
sponsibility for failure or success does not devolve
upon these officials. It is distributed among a swarm
of agents of the hierarchy, and vanishes finally in some
central bureau. Any private business which had to
struggle under similar conditions would end in bank-
ruptcy. Nor is this state of affairs the fault of man.
It is inherent in the very nature of the institution
itself.

We find another opportunity of demonstrating the
truth of the foregoing statement in a building enter-
prise, the history of which deserves to be preserved.
Such utter lack of foresight and such an accumulation
of mistakes are rarely found in one and the same busi-
ness undertaking.

The enterprise referred to is the rebuilding of the
National Printing Office. If any enterprise could have
been conducted by government agents it would seem
to have been this particular one ; for it was confined to
construction work based on rigid specifications. We
have, it would seem, enough state architects to bring
such a work to a successful conclusion. Yet the failure
was complete, and the budget suffered grievously in
consequence.

219

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

In the beginning the job was as follows : ^ To re-
build the National Printing Office upon a newly ac-
quired site, and to sell the buildings and ground in the
Rue Vieille-du-Temple previously occupied by the
office. The officials in charge presented the following
preliminary report to the Chamber of Deputies :

Francs
Purchase of a tract of 20,000 meters, g Rue de la

Convention, at Crenelle, at a cost of 1,002,350

Complete rebuilding and reequipping of the printing
ofBce as in operation to-day; estimate verified by the
committee in charge 2,960,000

Total 3,962,350

But this figure should be reduced by the amount to be
realized from the sale of the property in Rue Vieille-
du-Temple. This has been fixed at a minimum of 3,420,000
Sale of old materials 100,000

Total 3,520,000

Therefore, taking all these facts into consideration, the
Treasury should only be called upon for a net ex-
penditure of 442,350

Unfortunately the managers of the undertaking had
forgotten to look at their problem from all sides, and
Parliament made a great mistake in not perceiving
this in time.

In the first place, it was an act of presumption on
the part of the officials in charge to think of selling the
old palace of the Rohans, then occupied by the Na-
tional Printing Office. Naturally, protests arose from
all sides against the sale of this landmark of the past,
which kept alive the memory of the famous Cardinal,

'- The report to the Chamber of Deputies by Emmanuel
Brousse on Dec. 12, 1912.

220

FINANCIAL DISORDER

and to which were attached so many other historical
recollections. Its possession was a hypothetical and
contingent asset, it is true, but the attempt to make it
balance the expenditure ought never to have been seri-
ously considered. This, however, is not the point of
view from which the proceeding is most open to criti-
cism. Where the mistake becomes inexcusable is in
the estimate of the probable expense of rebuilding.

The committee declared to the Chamber, when
presenting it with the estimate of its architects, that
the rebuilding would cost in all, including ordinary mis-
calculations, a sum of 2,900,000 francs, and that, with
this credit, all the work could be carried on upon a
generous scale. But in order to reduce his original
estimate, which had been 3,734,000 francs, to the
figure just quoted, the architect, with the approval of
the committee, had had to leave out one story in most
of the wings, thus reducing the floor space in the shops
by 7,000 square meters (7,708 square yards). Yet,
despite this effort, in 1904 the committee had to report
a deficiency of 1,500,000 francs in the preliminary es-
timate for the construction of the new building.

In the following year it was discovered that the esti-
mate contained no provision for the installation of
either heat, light, or motive power for the mechanical
equipment. Consequently a new item of 750,000
francs had to be added to the previous amount. Then
there had been no provision in any of the plans for
housing the directorate and the subordinate function-
aries. According to the documents submitted by the
Budget Committee the expense of rebuilding the
property on the Rue de la Convention must ultimately

221

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

amount to 6,210,000 francs. The Chamber had been
told that it would only be 2,900,000 francs. The ag-
gregate difference between estimate and expenditure
amounted to 3,310,000 francs.

Finally to this difference of 3,310,000 francs should
be added the loss that the budget will suffer by reason
of the failure to sell the de Rohan palace. Later sev-
eral more mistakes were discovered.

At the end of December, 1912, when the expendi-
ture already incurred amounted to 10,445,000 francs,
the committee made application for a further credit
of 4,336,000 francs to finish the work.

It is understood that no one can be held directly
accountable for this state of affairs. The responsi-
bility rests with the committee in charge of the work,
which managed the affair badly, and with the other
committees, which helped to cover up official blunders.
This example is typical of the arrant folly only too
common in the conduct of state enterprises, and proves
once more that a government is far less skillful than
are individuals in the direction of such enterprises.

3. Each year the reports of the postoffice, telegraph
and telephone systems, and even of the Navy, show
the disorder to which all state operations are liable.
Yet, although complaints of maladministration of
these systems are incessant, do we not also know that
Parliament continues to tolerate insubordination in
the arsenals, increases in salaries, decreases in the
number of hours of labor, and all those generosities
which, instead of being an inspiration to production,
amount to so many premiums on laziness? Investi-

222 •

FINANCIAL DISORDER

gating committees are appointed. Of whom are they
composed? Deputies from the ports are pbced on
Navy investigating boards when they should be dis-
qualified by the very fact alone that the employees of
the Navy will be counted among their constituents.

But let the following facts speak for themselves.
A commission appointed to investigate conditions in
the Navy met at Guerigny in 1908. It had as its presi-
dent, M. Masse, deputy from La Nievre, on whose mo-
tion a steel plant had been founded at Guerigny in
1900. The commission passed exactly one day in the
town, after which exhaustive investigation of condi-
tions there it submitted to the Navy department a
report calling for new expenses.

The said steel plant of Guerigny, begun in 1900, has
been in operation since 1905. Its prime object is the
manufacture of Martin steel, and, according to the
authors of the amendment which provided for its es-
tablishment, it should produce armor plate at a price
considerably less than that paid to private companies.
Now M. Rousseau ^ has discovered, and not without
difficulty, in view of the complication of the accounts
of the Navy, that the equipment for the manufacture
of Martin steel must have already cost more than
5,000,000 francs, while the expense of the amortiza-
tion of this outlay during ten years, according to the
custom in the industry at large, is 500,000 francs.

Unfortunately, the investigating committee which
visited Guerigny declared (in 1909) that immediately
after the establishment of the steel plant the use of

^ Pour Sauver Quelques Millions.
223

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

Martin steel plate had fallen off considerably. I quote
from their report:

"As a matter of fact, the production is 300 tons of
armor plate a year. Assuming that this rate could be
maintained, the aggregate cost of amortizing the equip-
ment would amount to 1,666 francs a ton. Moreover, it
is to be feared that the use of Martin steel is continuing
to decline. On the Waldeck-Rousseau there was 37J/2
per cent, of Martin steel; on the Patrie type there was
only 24 per cent. ; on the Danton, 17 per cent. ; upon the
Jean Bart, 14 per cent, (figures disclosed by the official
reports).

"This fact is highly disturbing. The capital sunk in
the equipment for the manufacture of Martin steel will,
therefore, never be recovered. The department unques-
tionably made a mistake when, on the motion of M.
Masse, approved by the Chamber of Deputies, it saddled
itself with this equipment.

"But the commission feels that the plant at Guerigny
ought to be provided with equipment and machines
which will permit the manufacture of hardened steel, or
any other kind of steel destined to supplant Martin steel.

"It will probably be necessary to abandon the use of
hardened steel in its turn. But if the cementing furnaces
were used during only two campaigns, it would be suffi-
cient to pay off the expense involved in installing them."

The Commission, consistent to itself in its own in-
consistency, then reiterates its demand for cementing
furnaces, and says :

"Out of a total expenditure of 5,500,000 francs the
cementing furnaces only represent a very small sum, since
the plan provides for five at the cost of 70,000 francs
apiece. Moreover, it is not necessary Jo begin work

224

FINANCIAL DISORDER

with the installation of these furnaces. The construction
of the new workshop will take approximately three years.
A year is amply sufficient for the installation of cement-
ing furnaces. Assuming that the work will be begun dur-
ing the next year, or 1910, it will not be until two years
after, or 1912, that the value of the new steel manufac-
tured at Saint Chamond and at Creusot will be deter-
mined ; it will then be known whether hardened steel will
continue to be used in the Navy, and whether it will be
practicable to provide for its manufacture at Guerigny."

Thus, and as a result of the report of the Commis-
sion, it appears that the government ought to be pre-
pared to manufacture hardened steel at Guerigny, and
also to await a definite decision as to the value of a
certain steel, before commencing work on the furnaces.

The committee declares that it will take a year to
ifistall the cementing furnaces; yet the expenditures
are already estimated at 5,500,000 francs.

Following the recommendations contained in the
committee's report, the Navy department demanded
400,000 francs credit on the budget of 19 11, and the
Budget Committee was subsequently urged to raise
this figure to 900,000 francs. But, even with this
latter credit, six years would be required for the in-
stallation of the cementing furnaces. In asking for
400,000 francs, then, the Navy was demonstrating
its skepticism, and, in granting such a sum, the Budget
Committee was once more displaying its lack of fore-
sight. In any case both were wasting funds in order
to appear to be doing something, and not from the
point of view of the needs of the Navy, but from
local considerations.

225

Where and why public ownership has failed

Up to 1911 the general expenses at Guerigny were
118 per cent, of the estimated expenses.

The excuse for constructing the plant in the first
instance was that such an establishment would "regu-
late prices." But, in order to regulate the price of
private industry, the government ought to commence
by regulating its own.

The Director of the Guerigny works told the In-
vestigating Committee that :

"The saving of at least one franc per kilogram on the
cost price of armor plate at Guerigny is also obtained
in the manufacture of special steel, and this saving would
certainly be continued if we should manufacture
hardened steel. In this fact we have a serious argument
in favor of the extension of the manufacture of armor
plate. By doubling the expense incurred up to the pres-
ent on account of this manufacture, we can more than
triple the production; and each ton of armor plate made
at Guerigny would represent an economy of 1,000 francs,
taking into consideration the market price. Five thou-
sand tons of armor plate would suffice to warrant the ex-
pense of such an enlargement."

Five million francs have already been expended at
Guerigny. Now the management suggests a further
expenditure of ten millions. The average annual pro-
duction of 300 tons is to be increased— allowing a
wide margin — to 1,000 tons a year, with amortization
at I franc per kilogram; or, in other words, 1,000,000
francs a year, or 1,000 francs a ton. "How, upon
5,000 tons alone," demands M. Rousseau,^ "can such
an extraordinary feat be accomplished as to put aside

' See above.

226

FINANCIAL DISORDER

I franc per kilogram upon the cost of the industry,
that is to say, i,ooo francs a ton, while at the same
time the equipment is amortized at 2 francs per kilo-
gram, especially when there is to be an expenditure of
10,000,000 francs?" ^

The Investigating Committee declared the net cost
per kilogram of armor plate produced at Guerigny to
be I franc 27 to i franc 74, although the charge for
amortization alone was i franc 66 per kilogram.

The report of this same committee inspired still
more caustic comments on the part of M. Rousseau. -

"At the present time it is supererogation to state that
the documents emanating from the French Parliament
lack accuracy. It is an accepted fact, and is apparent
above all in whatever pertains to the Navy. That the
information contained in these documents is accepted
without sufficient scrutiny has been proven again and
again. It has been proven also that investigations are
not made with all the care desirable. For example, we
read in the report of the Committee appointed to investi-
gate conditions in the Navy that 'the cost of turbines ap-
pears particularly exaggerated.' In the first place, what
is this word 'appears' doing in the conclusions of an in-
vestigating committee? Why didn't the Committee get
to the bottom of the matter? What basis of judgment
did it have ? The premises were as follows : we quote
the report :

" 'Justice, reciprocating engine, 18,500 h.p., 2,614,000
francs.

" 'Voltaire, turbine, 22,500 h.p., 4,800,000 francs.

' L'Inf ormateur Parlementaire.
^ See above citation.

227

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

" 'At the same rate of cost as the engine on the Justice,
a reciprocating engine of 22,500 h.p. would cost :

22,500

2,6i4,oooX =3,267,500 francs

18,500

" 'The turbines have thus cost, per man-of-war, i,-
532,500 francs more than reciprocating engines, or about
10,000,000 francs for the six men-of-war. In reality, the
turbines are less expensive to construct than reciprocating
engines. As a result, there is a colossal profit for the
contractors after deduction of all their expenses. It
appears beyond doubt that the Navy has paid much too
high a price for the turbines.'

"It is a universally admitted principle that like objects
alone are comparable. It is well that it did not occur
to the author of the little calculation quoted above to
compare turbines with automobile motors, because, with
the same serenity, he would have declared the contractors
absolutely ruined, rendering the stock of their dock yards
valueless, while, on the contrary, he has given them an
enhanced value."

4. In any estimate of cost price there are two fac-
tors, direct expenses and general expenses.

In the navy yards general expenses are undivided
expenses, uniformly computed at 28 per cent, of labor
costs. In the case of the Jean-Bart they were com-
puted at 24 per cent.^ The proportion is a purely
arbitrary one.

M. Klotz, then General Secretary (Rapporteur
General), has said in this connection:

' Rousseau. Pour Sauver Quelques Millions, see Journal des
£conomistes, Dec. 31, 1911.

228

FINANCIAL DISORDER

"In the cost of work done by arsenals the following
expenses appear :

"a. Expenses of operating the workshops of the ar-
senal, etc. — labor expenses and cost of supplies (coal,
dynamos of workshop motors, etc.), called undivided ex-
penses.

"b. Expenses of equipment, applied especially to new
construction : the small equipment used in building (tools,
borers, electric apparatus, stationary, construction stocks,
and a certain number of machine implements).

"Among general expenses are not included :

"c. Wrongly, we think, the salaries of technical em-
ployees, engineers, and their assistants engaged solely in
construction work. These are paid according to regula-
tions contained in special chapters of the budget. The
cost of a ship constructed in the arsenal would be in-
creased so much more.

"d. Rightly, the expenses of large equipment : An ar-
senal is necessary in tirne of war. From this viewpoint
workshops, dry docks, derricks, etc., are prime necessities.
In time of peace the state must choose between two prob-
lems : to leave this equipment unused, or to employ it in
new construction. The state has an evident interest in
adopting the second solution. As the equipment would
exist even if there were no new construction, it is legiti-
mate not to include expenses of this character in the cost
of such construction."

Whatever else he may say M. Klotz at any rate
acknowledges that general expenses are not accounted
for in the Navy. The distinction which he makes
between the material to be accounted for and the ma-
terial not to be accounted for, in the cost of a ship,

229

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

is a demonstration in itself of the arbitrary char-
acter of construction estimates: As equipment is used
and replaced during times of peace, it is only just to
add to the original cost of the products manufactured
the cost of the equipment used in such manufacture.

The Navy department had fixed the net cost per
ton of the three steel cruisers, Jules Ferry, Leon Gam-
betta and Victor Hugo at 2,211 francs, 2,230 francs,
and 2,286 francs, respectively.

The Committee of Accounts on the work raised the
general expenses from 12 to 23 per cent., so that the
cost per ton came to 2,512 francs for the Leon
Gambetta, 2,605 francs for the Victor Hugo, and
2,717 francs for the Jules Ferry, a cost higher than
that of similar ships constructed by private companies.
We quote in full the two estimates :

Official Cost Real Cost
Fr. Fr.

Leon Gambetta 27,998,858 31,530,858

Jules Ferry 27,757,364 34,123,364

Victor Hugo 28,689,964 33.951,964

In the case of the Jules Ferry a covered stocks was
erected, which was used only once, because the Jules
Ferry was the last large boat constructed at Cher-
bourg.

5. In the report of M. Dalimier, on the postal, tele-
graph and telephone services, for the budget of 19 12,
repetitions of the usual complaints are to be found:
Absence of preliminary estimates, apparent impossi-
bility for the department to furnish any indication as
to the total expenditures to be covered, etc.

230

FINANCIAL DISORDER

M. Dalimier says :

"As presented, the budget of the postal, telegraph and
telephone services ^ is indefinite. It contains certain
minute details which make the total absence or the insuf-
ficiency of information regarding really important ex-
penses appear the more regrettable.

"The utter lack of coordination results in the juxtapo-
sition of partial accounts, prepared and presented with
a disingenuousness which justifies all criticism: — general
lack of method ; too little attention to financial rules and
true bookkeeping principles ; no limit to the expenses when
the sources of loans are abundant; accounts which are
not sufficiently definite ; frequent disorder in the prepara-
tion and execution of the work as well as in the man-
agement of the loans !"

In fimil Dupont's report to the Senate, regarding
this same budget, I read :

"Many of these plans were not thoroughly developed
when appropriations were asked for. In putting down
200,000 francs as the cost of inaugurating the work of
enlarging the administrative offices of the service and re-
building the Postoffice itself, the department was simply
taking a figure at random. It acted in ignorance as to
what part of the work the sum was to be applied, nor is
the department yet aware, probably, how the money is to
be divided between the two buildings which are to be
rebuilt.

"The same statement holds good in the case of the
baggage department of the Eastern railway station of
Paris. The department demanded 100,000 francs and
found out afterward that 70,000 francs would suffice for
1912.

^ See Journal des Sconomistes, March 5, 1912.
231

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

"These overestimates in the case of important loans
have been going on for some years, and are a direct
result of the carelessness of those in charge of building
loans. As further examples, we might cite the substa-
tions of Martignac, 120,000 francs; Rue Bertrand, 115,-
000 francs; and, in the city of Lyon, 316,000 francs."

The report of M. Dalimier shows up an ingenious
administrative trick, characteristic of a particular psy-
chological state.

But let us take another very similar example of
the same tendency. In 191 1 the Postoffice department
demanded a loan of 522,135 francs for work on vari-
ous postoffices. In 191 2 it asked again for an abso-
lutely identical amount. The first loan was applied to
work then going on; the second had for its object the
depreciation of work concerning which there has never
been any discussion, and which will require an expendi-
ture of 585,000 francs.

A "passion for spending" is characteristic of all pub-
lic departments. The Dalimier report states that the
work of reconstruction going on at the central tele-
graph office was started only by the aid of a loan of
100,000 francs obtained in 1908; and that each of the
following years saw this figure grow, little by little,
until it stopped finally at 979,000 francs, not includ-
ing the 100,000 francs demanded in 1912 for the in-
stallation of a low-pressure heating system.

The report of M. Dalimier also furnishes a certain
number of characteristic figures concerning the Post-
office expenditures:

232

FINANCIAL DISORDER

Expenses Expenses

Provided for Incurred

FV. Ft.

Lyon 510.853 826,401

Auxerre 277,000 393,920

Martignac 750,000 870,481

Dijon 743,950 958,901

Rue Bertrand 640,000 755.483

Bureau des Archives 1,000,000 2,650,370

In the case of the telephone office in the Rue des
Archives ^ the preliminary estimate of expenditures
covering purchases of land and construction reached
1,900,000 francs, while the entire building will cost
2,692,202 francs. Assuming that half the building
of the Bureau of Archives is to be devoted to a multi-
ple switchboard, designed for 500 subscribers, each
subscriber will cost the state 269 francs. It is true
that "immense hallways and superb galleries, offices,
rest rooms, and rooms open to 20,000 subscribers" are
to be found there.

6. The celebrated manufacturer, H. Laws Webb, at
a meeting of the London Chamber of Commerce, on
February 17, 191 1, and the Spectator, as well, have
made public the serious embarrassment which the op-
eration of telegraph lines has entailed upon the English
government.

Forty-five years ago, in 1866, the government first
proposed the purchase of the British telegraph lines,
then valued at 57,500,000 francs ($10,925,000). Ne-
gotiations lasted about three years, or until 1869, when
Parliament appropriated 175,000,000 francs ($33,-

^See the Cheron report of May 10, 191 1, upon a demand for
supplementary appropriations.

2ii

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

250,000) for the carrying out of the purchase, or more
than three times the original estimate. Moreover, the
government was forced to pay a further sum of loo,-
000,000 francs ($19,000,000) to the railway compa-
nies for their rights over the telegraph lines established
along the railroad tracks. Therefore, the complete
acquisition of the undertaking cost the British govern-
ment 275,000,000 francs ($52,250,000).

It had been predicted that, during the course of
some twenty years, the net returns from the operation
of the telegraph would contribute toward a very sensi-
ble reduction of taxation. But this delusion quickly
vanished. There was, it is true, a small net profit in
the first two years of state operation, but afterward
the receipts were never sufficient to meet the interest
on the capital invested; and, during thirty-nine years,
this enormous deficit has been borne by the Treasury,
that is to say, by the people.

Finally, under the pressure of public opinion, which
had anticipated, as a consequence of such a measure,
an increase in business and consequently of receipts,
telegraph rates had to be reduced. The result, how-
ever, was exactly the opposite of what had been proph-
esied. On the one hand, the expenditures for main-
tenance and operation increased enormously under
government administration, while the necessary keep-
ing up to date of the installation rendered the receipts
more and more insufficient and the demands on the
Treasury more and more insistent.

When one takes into account all the elements, and,
more especially, the amount of the original capital,
which has never been paid off, the advances made by

234

FINANCIAL DISORDER

Parliament, which have never drawn any interest, and
the annual deficits on operation, the total commercial
loss caused to the country by the purchase of the tele-
graph amounts at least to £35,000,000 ($170,450,-
000). The English taxpayer has not even the conso-
lation of thinking that the government possesses an
appreciable asset to offset this loss, because, in the
case of this particular enterprise, each year of its op-
eration entails a supplementary loss of more than 25,-
000,000 francs ($4,750,000). From a commercial
point of view the purchase has been a complete failure.
The English press makes the following comments :
The partisans of government ownership invariably
reply to the charge that the British telegraph lines
have been a heavy financial burden to the taxpayers
with the statement that the public has received com-
pensation in the form of a better and cheaper service.
This assertion is plausible, but not convincing. Even
if it were sound, one would be forced to ask by what
right the whole body of taxpayers is made to subsi-
dize people making regular use of the telegraph but
constituting a minority of the population? The ex-
pense of operation per million telegraphic words is
actually more than it was thirty years ago in Great
Britain.

7. At a conference of postal employees, held at Les-
lie, April 18, 191 1, Mr. Crossley declared that the
Postal Savings Bank suffered an annual loss of 100,-
000 pounds sterling ($487,000), due to bad adminis-
tration and bad investments.^

' The Morning Post, April 19, 191 1.

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

8. When I was a member of the Municipal Council
of Paris, of the Chamber of Deputies, and the Budget
Committee, I watched with the greatest interest the
infinite pains taken by my colleagues to set down on
paper (by decreasing the preliminary estimates of ex-
penses and increasing the provisional receipts), a bal-
ance in which the receipts would present a more or less
insignificant surplus. As General Secretary of the
budget I was accustomed to place at the head of my
report the estimated figures of the budgets, as voted,
together with figures of the supplementary appropria-
tions which usually had to be added during the year.

In a long financial discourse before the Chamber of
Deputies Fernand Faure defined the theory of two
budgets : the estimated budget voted and the real bud-
get spent.

At the present time the Chamber of Deputies spends
weeks in examining the plan of the budget. On Oc-
tober 23, 1884, in one single sitting the accounts of
1871, 1872, 1873, and 1874 were approved. In one
single sitting, also, the accounts of 1876, 1877, 1878,
1879, were accepted and this 11, 10, 9, and 8 years,
respectively, after the close of the years concerned.

In 1 9 12 the Committee on Final Accounts of the
budget decided to examine in detail the accouhts sub-
mitted to it. The first report, published in July of the
same year, and the work of Louis Marin, relates to
the accounts of the minister of Foreign Afifairs for
1907. It lays bare the following facts :

I. That the various expenditures are often set down
in such fashion as to conceal the real object of the
expenditure.

236

FINANCIAL DISORDER

2. That inaccuracy in deduction and confusion of
matter are the rule.

3. That violations of the regulations in force are
chronic.

4. That a great number of sales made in the name
of the department are irregular or fictitious.

5. That waste abounds, and that, whereas many em-
ployees are paid too little, others benefit by unjusti-
fiable generosity.

Now the department of Foreign Affairs has noth-
ing to produce, nothing to sell. It does not need any
special equipment for the carrying on of its work. It
does not have to watch the market price of supplies
and to buy them under the best possible conditions.
In a word, it does not have to do any of the things
required of a trading enterprise, in seeking openings,
etc. Its staff is easy to manage, and has the reputa-
tion of being devoted. What would happen, then, if
the department were called upon to manage a com-
mercial undertaking?

9. All extravagant departments try to negotiate
appropriations in a more or less round-about manner.

We have worked out a grand naval program, which
is to extend over a period from 1912 to January i,
1920. Its object is to add units to our fleet and to
increase the facilities of the ports which are to re-
ceive them.

The outline of the plan includes a certain Article 9
which authorizes the government to construct ships
enumerated in a certain schedule "A" in such man-
ner as will insure the completion of sixteen men-of-

237

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

war on January i, 1920. The two paragraphs read as
follows :

"The expenses of carrying on the new construction
will be provided for by entering the annual appropria-
tions mentioned in schedule 'B' upon the budget for
the fiscal years 1912-1919.

"In case the expenditures of one fiscal year should be
greater than the provisions of the said schedule warrant,
the excess shall be carried over by anticipation to the
appropriations for the following year within a maximum
limit fixed each year by the Finance Law."

The construction work to be carried out between
January i, 1912, and January i, 1920, will involve,
according to the original plan of 19 10, an expenditure
of 1,326,000 francs. The recent loss of the Liberie
has increased the amount in round figures to 1,400,-
000,000 francs ($266,000,000).

The government was anxious, and rightly so, to
charge these loans to ordinary expenditures. Yet it
resorted to eating its corn before it was ripe, like Pa-
nurge. And this roundabout method was finally
adopted by the Chamber of Deputies.

Two estimates were made, one indicating the actual
amount to be expended per year for new construction ;
the other showing the distribution of the annual ap-
propriations over the entire period.

The appropriations for 1912, 1913, and 1914 were
the smallest for the period, while the proposed ex-
penses were at their maximum in 1913 and 1914. The
two estimates in detail were as follows:

238

FINANCIAL DISORDER

Estimated Estimated

Expenditures Appropriations

Fr. Ft.

I912 177,327,000 160,000,000

I913 204,128,000 170,000,000

I914 229,149,000 175,000,000

1915 204,439,000 180,000,000

I916 189,252,000 180,000,000

1917 159,800,000 180,000,000

1918 143,684,000 180,000,000

I919 90,934,000 180,000,000

1,398,713.000 1,405,000,000

Up to 1916 the expenditures exceed the appropria-
tions by 139,295,000 francs ($26,466,050), but the
Navy is empowered to carry over the excess by antici-
pation upon the appropriations of the following years.
The sole check to such mortgaging of the future is a
provision permitting Parliament to fix a maximum
each year in the Finance Law.

Thus the custom of advances from the Treasury,
which are to grow from year to year, has been firmly
established. The Chamber of Deputies has specified,
in the hope of decreasing the figure, "that the excess
shall be regulated with the help of supplemental
credits" — a practical application of the method of bal-
ancing budgets by means of supplementary appropria-
tions.

Senator Gauthier, for the Finance Committee,
brought forward strong objections to this system,
which he justly described as a "disguised loan, or a
loan by annual installments." He pointed out all the
frauds which would result.

"The system of anticipations and that of supplementary
credits superimposed upon it, has the advantage of au-

239

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

thorizing and legalizing expenditures not covered by the
original appropriations; but it does not create any new
revenue. The deficit still exists."

Each man-of-war had been estimated at a uniform
cost of 62,525,000 francs, when made in the arsenals,
and 64,000,000 francs in private shipyards. As a
matter of fact, they have all cost exactly the same, ex-
cept the new Liberte, constructed by the government,
which cost 72,000,000 francs. England and Germany
are providing battleships of 26,000 tons. Will we be
long content with only thirteen battleships in the dock-
yards ?

The minister of Finance "agreed to insert into the
Finance Law of 191 3 clauses purporting to cover by
corresponding available resources the entire amount
of expenditures incurred, which expenses will thus
appear, at the end of the period of construction, as
arranged for by the law providing for the naval pro-
gram." In so doing he acknowledged the soundness
of the criticisms of Article 9, made by the finance com-
mittee of the Senate. But he had already accepted
for himself, and he has made the Chamber of Depu-
ties accept his system.

I cite this case to show by what processes a depart-
ment may attempt to secure resources by the help of
disguised loans. It tries to escape from a unified
budget by all sorts of devious methods.

We can judge to what plundering the general bud-
get would be handed over if each department had its
own autonomous industrial budget.

240

CHAPTER XXII
THE PURCHASE PRICE

Telephones. — The Southern Canal. — Swiss Railways. — The
Western Railroad. — The "Operation Blanche."

When there is some undertaking to be purchased
the partisans of nationalization and municipalization
always start the ball rolling by saying : "Oh, it will
cost practically nothing," and then they proceed to
reveal their economic limitations by making estimates
which are invariably lower than the facts warrant.

When the French government decided to take over
the telephone, it estimated the cost at 5,000,000 francs.
The company demanded 18,800,000 francs. The state
was finally forced to compromise at 9,313,000 francs,
a figure which, with interest and costs added, ulti-
mately increased to 11,334,000 francs, or 126 per cent,
more than the first estimate.

Again, when the government determined to pur-
chase the Southern canal, an outlay generally regarded
as wholly unnecessary, advocates of the enterprise
were unanimous in their enthusiasm over the manifest
bargain. "It will cost the state nothing." But the ar-
bitration commission ordered the state to pay to the
Southern company an annual indemnity of 750,000
francs, based on a capital of 25,000,000 francs.

241

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

Nor is France the only country furnishing ex-
amples of such frauds. Switzerland had similar ex-
periences when she decided to purchase the railways.
The Federal government appropriated a sum of 54,-
300,000 francs for the Central. The line actually cost
her 75,000,000 francs, or 20,700,000 francs (36 per
cent.) more.

Fifty-four million francs was afterward appropri-
ated for the Northeastern line; 82,000,000 francs, or
28,000,000 francs (51.8 per cent.) more, was the
actual price. The original appropriation for the
Swiss Union was 31,700,000 francs; 40,000,000
francs, or 26.2 per cent, more, was the final figure.

An account of the government's underestimate of
the cost of the Western line — the so-called "operation
blanche" of M. Barthou — has already been described.^
The state had appropriated in all 220,000,000 francs
to cover the cost of purchase. It actually paid 321,-
000,000 francs or more than 101,000,000 francs over
the original estimate.

' See Book 2, Ch. 8.

242

CHAPTER XXIII

DELUSIONS OF PROFIT AND THE LIFE INSUR-
ANCE MONOPOLY IN ITALY

1. The Law of April 4, 1912. — Legal Excuse. — Delusions

of Profit. — Private Companies. — The Propaganda. —
OfBcials as Insurance Brokers. — Work for the Sake
of Service and Not for Gain. — Contradiction in Terms.
— The Commissions paid by French Companies. — Divi-
dends of Private Companies in France. — Probable Ad-
vantage to Italy.

2. Provincial and State Insurance. — Compulsory Fire In-

surance in Germany, Bavaria and Switzerland. — In the
Cote-d'Or.

I. In order to be assured that no deceptions would
be practiced on it, in buying out the insurance com-
panies, the Italian government put itself quite simply
in their place. The resulting monopoly, confirmed by
the law of April 4, 1912, had for its principal object
the establishment of so-called labor pensions. "The
profits drawn from this monopoly will be paid into
the National Insurance Fund, upon the books of which
any workman engaged in either industry or agricul-
ture may be entered, provided he is not paying an
annual government tax exceeding 30 francs."

The real excuse for the bill was the activity of the
French and English governments in passing insurance
laws. The Italian government decided that it ought

243

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

to bestir itself along the same lines. Therefore, in-
stead of taking the sums necessary for its pension
scheme from general budget funds, it created a spe-
cial fund by establishing an insurance monopoly.
Moreover, by the destruction of institutions which
have been the most powerful agents in stimulating
the spirit of individual thrift, the government hoped
to promote a system of social thrift. The irreconcil-
able contradiction existing between free and compul-
sory insurance could not have been revealed in a more
striking fashion, and it is only necessary to couple
adjectives and noun in order to show the deceptive
character of all enterprises of this nature.

But, it is strange enough that financiers as shrewd
as the Italians should allow themselves to be deluded
by the hope that the insurance monopoly would yield
large resources. They have undoubtedly been seduced
by the sight of the profits of insurance companies.
But are such profits possible under government ad-
ministration ?

In the first place, in order to recruit policyholders,
an active propaganda is indispensable. The policy-
holders of life insurance companies do not apply in
the first instance to the companies. They must be
sought for diligently and persuaded to take out a policy
by an insurance broker, who demands a good and suffi-
cient reward for his efiforts in bringing about such in-
vestment. What measures has the Italian government
taken to attract policyholders?

In presenting his bill to the Chamber of Deputies,
the minister responsible for it declared that the Na-
tional Insurance Fund "ought to undertake a cam-

244

DELUSIONS OF PROFIT

paign of education which should penetrate into the
farthest and quietest corners of Italy, even where the
ordinary business man does not go on account of the
improbability of any success attending his efforts.
Therefore, the National Insurance department will ac-
cept as agents notaries, registrars, tax collectors, mu-
nicipal officials, postmasters, men who are in constant
touch with the people, and who can render valuable
services to insurance by awakening the desire to look
out for the future needs to a degree never before
aroused." In a word, all public officials are to be ulti-
mately transformed into insurance agents.

But, despite all the enthusiasm that these amateur
brokers may be able to arouse, such cooperation will
not be effective unless commissions are paid. And
then what becomes of the all-important excuse for
the substitution of a government monopoly for pri-
vate enterprise, viz. — service rendered for the sake
of the cause and not for gain?

Now the average agent works for the sake of gain ;
and the biggest cost item of insurance companies is
the commissions of these same agents; even the gov-
ernment monopoly itself has preserved them. In the
case of sixteen French companies, maintaining fixed
premiums, these expenses amounted, in 1911, to 20,-
912,800 francs, to which sum must be added 16,172,-
000 francs of general expenses and 1,202,746 francs
in gratuities and bonuses.^

What will be the insurance rates under public oper-
ation? If the state wishes to use persuasion, instead
'^ Sconomiste Frangais, July 27, 1912, reproducing the annual
table of the Moniteur des Assurances.

245

WHERE AND WHY I-UBLIC OWiSTERSHIP HAS FAILED

of force, it ought to make its rates as easy as possible
for the policyholders, but the profit to the state will,
of course, be just so much less.

I have not at hand the profits of the life insurance
companies in Italy, for 191 1, but in that year the divi-
dends of the sixteen French companies just mentioned
reached the sum of 15,161,331 francs. Great as has
been the economic development of Italy no one will
pretend that its economic prosperity equals that of
France. However, if the Italian monopoly is as effi-
ciently administered as are the French insurance com-
panies, and, if it has as capable agents, it might per-
haps be able to realize half or two-thirds of the indus-
trial profits of the French companies, in which case it
would yield to the Italian government from 3,000,000
to 6,000,000 lire annually.

Very striking in this connection is the status of the
old age pension system in France — a national under-
taking. From 185 1 to 1889 the amount of first pay-
ments was 816,323 francs, or, in 39 years, 20,931
francs a year. The laws of July 20, 1886, and April 9,
1898, increased the activity of the fund, but, even so,
its usefulness has been mainly restricted to associa-
tions. In 1910 the number of their payments approxi-
mated 5,305,447, amounting to 79,982,892 francs,
while the number of individual payments was only
82,780, aggregating 9,900,365 francs. In 1909 the
private accident insurance companies had 4,856,000,-
000 francs on insurance policies, while the National
Insurance Fund had insured for only 77,494,000
francs, a proportion of less than 2 per cent.

246

DELUSIONS OF PROFIT

The mathematical reserves and the other funds
available are to be employed as follows by the Italian
National Insurance Fund:

1. In the purchase of bonds of the consolidated
public debt of the kingdom of Italy.

2. In the purchase of other bonds issued or guar-
anteed by the Italian government.

3. In the purchase of securities issued by title guar-
antee trust companies.

4. In advances upon the guaranty of the bonds
just described by numbers 1,2, and 3, of the present
Article.

5. In the purchase, by means of cession and subro-
gation, of annual debts of the Italian government.

6. In loans upon national insurance policies within
the limits of the value of the policy.

7. In the purchase of real estate situated in the
Kingdom, on condition that these properties be free
from mortgages and all other charges and in a pro-
portion not to exceed a tenth of the reserve.

8. In subsidies to employees and workmen of the
state, provinces, and municipalities; public and phi-
lanthropic institutions; pawnshops; chambers of com-
merce and banks, on a guaranty of the cession of a
share in the profits due them.

Where is the state which can guarantee that its
income will constitute a perfectly sound investment
when English consols are at 74 shillings? The
Italian revenue is susceptible to sudden changes which
make predictions difficult for both the monopoly and
its policyholders. The government will have to as-

247

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

sume all responsibilities and the investments directed
by clause No. 8 will be very difficult of execution.

The Fund enjoys privileges which assure it of cer-
tain resources, but only to the detriment of other gov-
ernment undertakings. For example, it has free use
of the postal and telegraph services. Both these serv-
ices thus lose revenues which private insurance compa-
nies would have yielded them.

Finally, the profits of the monopoly are exempt
from the income tax, which private companies would
have to pay.

The officials who are to act as insurance agents
have their own duties to fulfill. Unable to devote
more than their idle moments to the new task, they
will always be working at a disadvantage. Nor is
every man fitted by nature for the role of insurance
agent. Not only is the taste for it lacking, but skill,
tact, and technical ability will be wanting.

Possibly the officials will gather some personal bene-
fit by reason of the added authority which their new
position gives them. They may, perhaps, be able to
obtain by main force policies which ordinary agents
are not able to get. But, successful insurance is not
only a question of affixing a signature, nor even of
the first payment on a policy. A policyholder must
persevere. What if he slips back after the agent has
received his commission?

This is a risk which all insurance companies know.
The state will also discover it, but it will find itself
placed in a still more difficult position by the necessity
of refusing contracts brought in by its officials and
employees. It will be forced to choose its policy-

248

DELUSIONS OF PROFIT

holders, to accept some and refuse others, and in-
surance exiles, branded with a sort of discredit, if not
infamy, will thus be created.

Italy and Uruguay are the only countries which
have experimented with national life insurance. The
independence of the National Insurance Fund of Uru-
guay is greater than that of Italy. It was established
by a law of December 26, 191 1, and is, therefore, too
recent to furnish any authoritative data.

Systems of state fire insurance are found in other
countries. In Germany public fire insurance associa-
tions "have always been energetically supported by
the government." * Landed proprietors are compelled
to insure their property with public offices in Bavaria,
Wiirttemburg, and the grand duchies Baden and
Hesse. Private insurance enterprises are limited to
personal property and to risks on real property not in-
sured by the state.

Nevertheless, it has not been found either possible
or advisable to oust the private companies, as is proved
by the following table, giving the insurance situation
in Germany in 1906 :

52 Public _A n««„*;* 32

Fire Insurance 'Ig^^' Corn-

Associations oocieues pames

Receipts : Millions of Marks

Assessments, or gross premiums 78,343 36,094 190.347
Miscel. returns 73.66o 33,935 107,134

Expenses :
Indemnities and taxes SI.708 10,294 90,291

Miscellaneous expenses :
Contributions to fire companies
and amortization 16,094 S,"4 34.389

' Annates de la Regie Directe, April, 191 1.

249

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

The Municipal Fire Insurance Fund of Rostock has
reinsured with a private company the total capital in-
sured by itself. It is, therefore, nothing more than
an agency for the collection of premiums and the dis-
tribution of indemnities.-'

The canton of Waad has insured both real and per-
sonal property since 1849; insurance is compulsory.
Personal property insurance is unknown in any other
canton,^ but national insurance of personal property
is about to be established in Switzerland.

In the insurance system in operation in the canton
of Waad the cost of administration was 13 francs 48
in 1907; in Glarus, from 1895 to 1905, 9 francs 34
per 100, and in 1907, 13 francs 48.

The state must accept all risks, the bad with the
good.

December 20, 1907, the French minister of the In-
terior announced that he would not oppose the crea-
tion of a departmental fire insurance fund in the dis-
trict of the Cote-d'Or. The fund was therefore es-
tablished, January i, with an annual subsidy of 15,000
francs from the General Council, and with a central
bureau installed in the prefecture.

A clause limited the insurance premium to 10
francs; but this clause, considered "as a sHght anti-
collectivist barrier," has disappeared. The advan-
tages extolled are : The annual policy ; the oppor-
tunity of insuring one's self at the town hall of one's
own town ; "following a disaster an appraisal of dam-

^ Annales de la Regie directe, April, 191 1, page 169.
'Ibid., December, 1909, page 47.

250

DELUSIONS OF PROFIT

ages devoid of any spirit of quibbling or barter." The
policyholder is always free to withdraw or to modify
his policy.

No bargaining; ample satisfaction! Under certain
circumstances insurance may well become an oppor-
tunity for profit in a sense never intended.

Here are evidently advantages beyond those offered
by private companies^at the expense of the taxpay-
ers in the first place. Ten years hence the actual re-
sults may be known.

Two French deputies, MM. Cartier and Coudere,
have each introduced a bill, establishing a state mo-
nopoly on every species of insurance. Both have
been reported favorably by Brisson.

In the case of the fifty-four most important French
insurance companies, with fixed premiums, life, fire,
etc., the profits are estimated at 31,000,000 francs.
After deducting reserve and sinking funds, a net profit
of 25,000,000 or 26,000,000 francs remains. Let us
suppose that, with the help of first-class investments,
the state can obtain a net amount greater than this
profit and equal to the total dividends distributed by
the companies, or, in other words, 35,000,000 francs.

Unless the state confiscates it will have to pay the
companies between 1,000,000,000 and 1,500,000,-
000 francs, in order to buy them out, which sum,
at 3 per cent., represents an annual interest of from
30,000,000 to 45,000,000 francs. Then add to this
amount a sinking fund of about 10,000,000 francs.
We have thus an asset of 35,000,000 francs, with lia-
bilities of 40,000,000 to 55,000,000 francs. The bal-

251

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

ance of this operation is a deficit of 5,000,000 to 20,-
000,000 francs.

But how will it be if the state system operate with
less favorable results than private companies — an al-
most certain contingency? The losses might well
reach 30,000,000 or even 40,000,000 francs.-^

' De Monopole d'Etat. Rapport au Congres de Chambre de
Commerce, by M. de Lasteyrie.

35*

CHAPTER XXIV

THE FISCAL MINES OF THE SAAR DISTRICT
The Prussian Government Mines. — Decrease of Profits.

Not only railways, but all other state undertakings
are exposed to commercial risks. Their profits do not
always increase, as is proved by the fiscal mines be-
longing to the Prussian government. The following
tables show the decease in the aggregate in the ac-
counted profits of Prussian mining undertakings :

Reported

Number of

Profit

per

Years

Profits

■Workmen

Capita

Marks

Marks

Pf.

1890

24,464,000

36,475

433

19

1891

17,112,000

57,939

395

36

1892

13,829,000

57,307

241

33

1893

15,084,000

55,322

272

66

1894

15,024,000

57,009

263

55

I9OS

30,651,000

84,244

363

84

1906

27,444,000

89,130

307

92

1907

14,622,000

92,776

157

61

1908

16,136,000

96,84s

166

62

1909

17,000,000

101,941

166

76

Average

1890-1894

17,102,600

52,810

321

22

1895-1899 •

27,302,552

64,37s

424

OS

1900-1904

34,846,403

77,462

449

85

ipos-it

309

21,170,600

92,987

232

SS

The enormous falling ofif after 1905 is readily seen;
the decrease per workman is 48 per cent., compared
with the previous period.

253

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

A similar decrease is to be noticed in all the mining
enterprises except that of salt.

1890 1906 1907 1908 1909

Thousands of Marks
Mining undertakings

except salt 20,415 20,987 8,058 10,921 11,299

Metallurgical works . . 1,099 4.245 1,982 882 31

Salt works 1,749 668 3,210 3,930 5,031

Thermal establishments 34.7 35.1 34.0 5.5 IH-I

Total 23,297.725,935.113,284. 15,738.516,472.1

The decrease in the profits in government mining
ventures is due, above all, to the coal mines of the
Saar district.

The following triennial tables show the changes
which have taken place since 1900 in the cost and the
selling price per ton of the coal from these mines:
Cost per ton in marks
Charges
Years Salary E^quip- ^forthe^ ^axes Total-

Workmen
1900 4.74 1.64 0.44 0.12 1.43

1903 4-89 1-57 0.52 0.18 1.82

1906 5.26 1.74 0.55 0.16 1.78

1909 5. 52 2. II 0.74 0.19 2.13

Selling price and profits

Price Expense r-^^^i..*.

Years Actually for New ^^Sf Total'

Realized Installation "°°^

1900 10.68 0.14 2.76 2.90

1903 10.00 0.22 1.48 1.70

1906 10.40 0.28 1.36 1.64

1909 11.03 0.58 0.59 1. 17

The net cost has increased 48 per cent, and the
profits have decreased 59 per cent. The budget es-

' Translator's Note — I have been unable to verify these fig-
ures, which appear to be incorrect.

254

THE FISCAL MINES OP THE SAAR DISTRICT

tablished by the Prussian Department of Mines, Foun-
dries, and Salt Works, has been worked out on new
principles, such as a distinction between the costs of
administration and the expenses of operation, reserves
for new installations, current expenses, etc. Miscel-
laneous expenses, figuring heretofore in the general
budget of the Prussian government, although really
concerning financial operations, have been carried
over to the budget of the Department of Mines, Foun-
dries, and Salt Works. Hence, there is a decrease of
8,859,177 marks in the preliminary estimate of the
net profit as compared with the budget of 1911.^

The gross profit upon Prussian fiscal mining enter-
prises was estimated for 1912 at 18,215,000 francs;
the net profit at 5,938,000 francs. It should be ex-
plained, however, that a certain amount had been pre-
viously deducted for the Academy of Mines at Berlin,
as well as for the Geological Institute.

^Circulaire du Comite Houilleres, February 10, 1912.

255

CHAPTER XXV
PUBLIC VERSUS PRIVATE ENTERPRISE

1. A Priori Reasoning Contradicted by Facts.

2. The National Printing Office and the Paul Dupont

Printing Company.

3. Naval Construction.

4. Two Piers. — The Telephone Company and the Post-

office.

5. Indemnities for Losses Upon State and Private Rail-

way Systems.

6. Public and Private Electrical Plants in Germany.

7. Other Results in Germany.

8. The Municipal Public Service of Paris. — M. Dausset. —

Superiority of Private Enterprises. — Benjamin Wei-
ton. — Psychology of the Middleman.

9. Reaction Against State Undertakings in New Zealand.
10. Letter of a Citizen of Manchester. — Conduct of In-
dustry and Its Regulation.

1. The partisans of socializing and of municipal-
izing all sorts of public services never tire of the old
refrain that state and municipalities manage enter-
prises for the good of the service, and not for profit,
and that, therefore, we ought to get them at a lower
cost. We ought to. Here we have a priori reason-
ing. The trouble is that such reasoning is constantly
contradicted by the facts.

2. Some years ago the net profit on the National
Printing Office of France apparently represented

256

PUBLIC versus private enterprise

nearly normal interest on the capital invested. How-
ever, an investigation gave M. Colson an opportunity
of declaring that this result was only obtained by an
"exorbitant" increase in the prices demanded. In
proof of his statement M. Colson gave the following
significant example:

The Paul Dupont Company had arranged to fur-
nish the Navy with forms and designs at the same cost
as the National Printing Office, less the expenses of
composition, correction and holding of forms. The
National Printing Office maintained that the Dupont
Company was working at a loss in order to ruin the
credit of the government establishment. An inspec-
tor of finances (inspecteur des finances) declared, offi-
cially, that this assertion was false, and that the Du-
pont Company both could and did make a profit on
the business, despite the reduction granted to the
Navy.^

3. On December 13, 191 1, the Assistant Secretary
of the United States Navy, Mr. Watt, told a com-
mittee of the House of Representatives that the bat-
tleship Florida, constructed by the government, cost
per ton (hull and engines only), 1,374 francs 50
($265.28) ; while the Utah, constructed by a private
company, cost 904 francs ($174.47). In 19 10 Con-
gress authorized the construction of two battleships,
the cost of which it limited to 30,000,000 francs ($5,-
700,000). The private company did its work accord-
ing to contract, at a cost of 500,000 francs less than
the original estimates; the navy yard required addi-

^ Communication a I'Academie des Sciences Morales et Poli-
liques, August, 1912.

257

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

tional appropriations until the actual cost reached over
35,000,000 francs ($6,650,000).

I read in the Army and Navy Journal, January 28,
1911 :

"The Committee on Naval Aflfairs recommends, also,
that Congress give to Secretary Meyer the power to con-
struct in a private shipyard the battleship New York, the
building of which was authorized during the last session ;
the secretary having shown that it will cost the govern-
ment at least eight millions and a half more to construct
the New York in the Brooklyn Navy Yard by reason of
the eight-hour law."

It is only in France that the Navy constructs more
ships than it hands over to private companies for con-
struction, as the following table shows (1911) :

Deep Sea Vessels Torpedo Boats

Private NawYard ^Private Naw Yard

Countries Companies ^^^ """ Companies "^"^ """

France,

Tons 73,400 83,634 15,944 ".358

Proportion per

cent 47 S3 58 42

England,

Tons 388,100 231,830 92,480 2,400

Proportion per

cent 63 37 97 3

Germany,

Tons 320,562 75,154 46,200

Proportion per

cent 81 19 100

United States,

Tons 184,075 48,82s 27,200

Proportion per

cent 79 21 100

4. In the cities of Portsmouth and Southsea there
are two piers : The one is private property, the other

258

PUBLIC versus private enterprise

the property of the city. The first is a success; the
second a "white elephant." ^

Faithful Begg, one of the best-known authorities
on business conditions in England, declared before the
London Chamber of Commerce, on the i8th day of
May, 1911 : "The National Telephone Company op-
erates on 58 per cent, of its gross revenue, while the
Postofifice operates on 74 per cent. The Postofifice
earns 3.5 per cent, on the capital invested, and the
National Telephone Company is earning 8.9 per cent."

5. On the Western (state) railway of France, from
1904 to 1908, claims for loss, damage, and delay
amounted to 1,566 francs per 100,000 francs of gross
receipts. From 1909 to 19 11 this proportion reached
3,043 francs. On the old state system the proportion
was 1,426. Since 1909 this sum has increased to
2,055 francs, which proves that the Department of
State Railways, while extending its lines, has not im-
proved them. On the Est, Midi, Nord, and Paris-
Lyon-Mediterranee — all privately owned lines — the
average is 1,175 francs. Thus the claims on the
Western are 157 per cent, higher, and on the two
other state systems 75 per cent, higher than on the
private lines.

I might add that the Western has fallen back on the
plea of "circumstances over which we have no con-
trol," floods, strikes, etc., a subterfuge to which the
private companies have not found it necessary to have
recourse.

^ Truth, April 26, 191 1.

259

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

6. A German engineer, Wilhelm Majerczik, has
published a comparative study of the results accom-
plished respectively by municipal and private electrical
enterprises in Germany.

We borrow the following facts from the analysis
of his study published in the Revue Economique Inter-
nationale, of July 15, 1912. The figures were taken
from the latest available statistics.^

In his survey Herr Majerczik has passed over the
Berlin and Hamburg plants, operated by private com-
panies, as their prosperity so far exceeds the average
that his comparisons would have been unduly afifected
by them. Moreover, his study bears only upon elec-
trical plants supplying localities with a population of
at least 100,000 inhabitants. These installations num-
ber fifty-six, and are subdivided as follows :

Municipal Private

Plants Plants

Number 41 15

Population in territory supplied 9,571,000 3,363,000

(The information given relates only to fourteen of
the private plants in question, data as to the fifteenth
not being attainable.)

The situation of the private plants is actually less
favorable to development than that of the public
plants. Yet, out of thirty-eight municipal undertak-
ings, twenty supply only a single locality. The extent
of territory supplied by private enterprises is double
that of municipal enterprises.

' Siatistik der Vereinigung der Elektrizit'dtswerke fur das
Betriebjahr, 1909, Dortmund,, 1910, supplemented by the Statistik
der Elektrisitdtswerke in Deutschland nach dem Stand, vom
April I, 1910. G. Dettmar, Berlin, 1910.

260

PUBLIC versus private enterprise

The municipal enterprises are the older; for, in the
beginning, such undertakings were considered the spe-
cial prerogative of local governments.

Municipal Operation Private Operation
Average Numbe^ ^^^.g, Nmn^er

1. Average number of

inhabitants in re-
gion supplied per
plant 234,000 41 240,000 14

2. Number of suburbs

supplied per plant 9.2 38 37.2 15

3. Average area per

plant in km.^.. 62.4 30 148.6 8

4. Average age (per

plant per year) . . 13. i 40 "-i ^S

The superiority of the equipment of private enter-
prises is demonstrated by the fact that the average
productive capacity of municipal plants is scarcely
three- fourths that of private plants.

Municipal Operation

Private Operation

Average

Number

of Plants

Average

Number
of Planta

5. Number of boilers

per plant

iS-S

37

13-6

14

6. Maximum pressure

kilogram per sq.

Qxm

II. 7

37

13.6

14

7. Heating surface

per boiler

226

37

266

14

8. Number of prime

movers per plant

8.2

36

9.6

9

9. Maximum power

per machine kw.

350

36

988

9

10. Average total ca-

pacity of accumu-

lators kw

8,000

34

10,500

14

II. Distribution:

Entire system.

489

41

S17

II

Overhead ....

57

41

281

II

Underground. .

432
261

41

236

II

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

The fewer boilers of the private plants are of a
more economical type than those of public plants, and
the prime movers are more powerful (Nos. 5 to 10).

In comparing light and power circuits we have 55.3
kw. per 1,000 inhabitants for 33 public plants, and 79
kw. for II private plants. If traction be added we
have 65.9 kw. for the first, 80.9 kw. for the second.
Municipal plants furnish power for traction to a
greater extent than private plants, because the great

OPERATING RESULTS

Municipal Plants Privats Plants

Av„.g. Nu^b« Ave«g« S'A,

18. Energy produced

per heat unit,

wh 0.086 34 0.103 II

ig. Energy produced

in per cent of

the total capa-
city, multiplied

by 8,760 hours,

per cent 17. 35 2O.0 II

20. Average time of

use of total
power of plant,
hours 1,317-10 36 l,48o.« 10

21. Annual loss of en-

ergy in per cent,
of the energy
produced 20.3 35 22.9 10

22. Energy furnished

per inhabitant . 91 3i i2-4 8

23. Private lighting

kwh 0.81 36 1.39 9

24. Public lighting,

kwh 14-2 21 23.9 g

25. Power, kwh 27.4 38 362 9

26. Traction, kwh. .. 16.4 24 9.7 3

27. Total, kwh. 37-0 38 39-5 9

262

PUBLIC versus private enterprise

municipal undertakings control all the important tram-
way systems.

Private enterprises are operated more economically
than municipal undertakings.

They can produce greater power per heat unit be-
cause they employ boilers and engines of greater unit
capacity and the agent of supply is better; that is to
say, with a given apparatus, they are called upon to
produce more. Their losses are greater, because they
operate as central stations at long distances. Private
central stations furnish 30 per cent, more energy for
private lighting, and 60 per cent, more for public
lighting per inhabitant. They also sell much more
energy for power.

The financial results are as follows:

The installation costs, on the average, are 1,160
marks per kw., for municipal plants, and 1,240
marks for private plants. The private plants operat-
ing at long distances have a more expensive system
of high tension lines and transforming stations.
Nevertheless, they can furnish i kwh. 28 per mark of
cost of installation, while municipal plants can only
furnish i kwh. 12. They also content themselves
with lower rates.

The following table gives the difference in rates
between municipal and private plants :

RECEIPTS PER KWH SUPPLIED

Municipal Plants Psivatb Plants
Pfennigs Pfennigs

Light 36.8 31.6

Power iS-7 12.5

Traction 9-95 9.13

^63

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

For light the average rate charged by private com-
panies is 14 per cent, less than that of municipal
plants ; for power, 20 per cent. Even for traction there
is a difference of about 8.3 per cent, in favor of
private plants.

The superiority of private plants is shown above
all in the matter of expenditures.

EXPENSES PER KWH SUPPLIED

Municipal Operation Private Operation
Pfennigs Pfennigs

Fuel 3.69 2.g8

Oil 0.13 0.09

Wages and salaries ... 2.04 2.15

Maintenance O.97 0.96

Miscellaneous 1. 17 1.74

Total 7.90 7.80

Gross difference, per

cent 13.2 9.5

The expenses for fuel, oil and maintenance are less
for private plants, because these plants are better
equipped and better managed. Yet the labor expenses
are higher. The miscellaneous expenses are also
higher, because private plants are subject to local taxa-
tion from which municipal plants are exempt. If
taxes were taken into consideration the gross differ-
ence between expenditures and receipts, which is 13.2
per cent, for municipal and 9.5 per cent, for private
plants, would be materially modified. The differences
would be reversed if private plants did not have lower
rates.

H. Marchand, in a summary of the work of Herr
Majerczik, concludes that, from every point of view,
public ownership and operation of the generating

264

puBuc versus private enterprise

forces of electricity can only be carried on at a disad-
vantage.

7. In the Journal des Debats and in the S.conomiste
Frangais Arthur Raffalovich has asserted that public
ownership and operation in Germany has been by no
means so successful as enthusiastic partisans of gov-
ernment ownership in France and elsewhere have tried
to make us believe. Several municipal enterprises have
recently been liquidated and a number of electrical
plants and tramways sold outright.

Recent reports of the Burgomasters of Strassburg
and Rheydt affirm that the operation of great indus-
tries by municipal authority is encountering numerous
difficulties; that it is lacking in flexibility; that it is
exceedingly hard to find competent managers ; that the
influences brought to bear are frequently far from dis-
interested, and often conflicting; that the majority of
the municipal councillors have no comprehension of
industrial or commercial business; that real profits
are rare. In 1908, out of 36 municipal tramways,
only 9 were operating without loss, while 1 1 were re-
quiring rather heavy appropriations.

The burgomasters charge that cities which are sup-
plying directly their own gas, electricity, and tram-
ways are being delivered over without let or hin-
drance to the ringleaders of the various labor associa-
tions.

In Germany to-day there is a very marked evolu-
tion in the direction of private management, the city
retaining the ownership of the enterprise, but leasing
the operation to a corporation. Cologne has con-

265

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

tracted with a private company to supply the extra
electricity needed, and the city has also promised not
to enlarge its electrical plants.

8. In his report on the municipal budget of Paris,
for 19 1 2, M. Dausset acknowledges the superiority
of private enterprise over public administration in the
following terms :

"It may as well be confessed that a special mechanical
equipment or a skilled staff is only to be obtained by
applying to a private company."

The business man keeps in touch with the latest de-
velopments and spares no efforts to select his mar-
kets under the best possible conditions. Public man-
agement, "even in those rare cases where it ventures
to take the initiative and point out to the council the
necessary improvements and repairs, is obliged to wait
several months, if not several years, to obtain the
money or the indispensable authority."

The same conditions prevail in the case of street
cleaning. The City of Paris is unable, with its limited
annual resources, scarcely sufficient for current ex-
penses, to bring about a rapid renewal of out-of-date
equipment. The contractor, on the contrary, has at
his disposal for such a purpose capital that he can
pay off at his leisure, and which permits him, more-
over, to offer attractive terms. Finally, being careful
to reduce the cost of maintenance to a minimum, the
contractor enters only after careful consideration into
initial expenditures. His chief reliance is in a first-
class equipment.

266

PUBLIC versus private enterprise

M. Dausset continues :

"The contract system is equally well suited to the pav-
ing and asphalting of the streets, and their maintenance.

"Here again everything depends upon the quality of
the material employed and on the process and the care in
manufacture, as well as on the way the work is per-
formed. Taking into account the importance of the
streets and the traffic they will be called upon to bear,
the contractor would know how to make the necessary
distinctions and would not hesitate, for example, to in-
crease by a centimeter the thickness of the asphalt bed
demanded by the specifications, if the street were much
frequented, in order to escape expensive repairs in the
near future, and to lessen thus the annual cost of main-
tenance.

"In the same way, in the case of construction and
maintenance of cobbled roads, the government, ill
equipped and lacking the flexibility indispensable for
performing such work rapidly and economically by profit-
ing by the experience of each day, has every interest in
leaving such work to private industry, while reserving
for itself the equally important and delicate task of con-
trol."

In his investigation of the efficiency of municipal
work Benjamin Welton also shows the superiority of
the business man over the public official.^

"The problem that he has to solve is simple, and he
considers it as a whole. He is not hampered by all sorts
of restrictions. He seeks the most competent men, dis-
charges the incapable, and is able to give bonuses for

^ EtHciency in City Government, page in.
267

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

increase of production. His rule is to compare expendi-
tures and results. He does not hesitate to make neces-
sary expenses which will be economy in the long run.
He organizes his units in such a manner that they give
the maximum income. Above all, it is impossible to
falsify his reports because they are verified by the party
with whom he is under contract."

9. The Socialists would have us believe that from
the moment a government or a municipality engages
in the nationalization or the municipalization of public
utilities it perseveres in the undertaking.

Yet we have seen that such undertakings have been
abandoned in Great Britain and Germany, while, as
for New Zealand, Mr. Scholefield, in 1909, and
Messrs. Le Rossignol and Stewart, in 1912, are
united in the conviction that :

"Of late years the whole tendency has been to leave
more and more to private enterprise. It is a swing of
the pendulum. Ten years ago the government would
not have dared to suggest allowing private companies to
develop the great assets latent in the energy of the rivers
of New Zealand. To-day it is the avowed policy of the
state to encourage private enterprise in this direction.
It is highly improbable now that New Zealand will make
any further pronounced advance toward State Socialism
until a new temper succeeds to the present mood of con-
servative Liberalism."

The New Zealanders are not theorists, but a certain
number are sufficiently shrewd to perceive that, when
a loss is resulting from a state enterprise, it affects
the whole nation. In other words, that the govern-

268

PUBLIC versus private enterprise

ment in pursuing such a policy is forcing some indi-
viduals to help to bear the financial burdens of others.

lo. J. C. B. Perry, in a letter to the Manchester
City News, of March 4, 191 1, said:

"If gas were being furnished by a private company
it would have to have a high illuminating power. We
cannot force the gas committee to give it, and it does not
give it. If the tramways belonged to a company they
would not be permitted to monopolize the streets in the
center of the city to the detriment of all other species of
transportation. Our market committee is losing on its re-
frigerating plants, while a competing company is a com-
mercial success and is giving 'cheap food'."

When political or administrative bodies, whether
states or municipalities, operate, they are regulating
themselves. This is a sufficient reason in itself for the
suppression of all public trading operations, because
it is necessary that there be a distinct separation be-
tween the forces of operation and regulation.

Industrial operation is inherently adapted to private
enterprise. Industrial control is the corresponding
function of states and municipalities.

369

BOOK III
ADMINISTRATIVE RESULTS

CHAPTER I
ADMINISTRATIVE RESULTS

Friends of socialization and municipalization, han-
dicapped by the financial results of the various forms
of government ownership publicly advocated by them,
have recently made a change of front. All right, they
say, publicly owned utilities do not bring in profits;
but to compare public administration with private is
to do the former an injustice. Its aim is not profit
but service. It sacrifices financial results to adminis-
trative results in the interest of the moral and material
progress of the nation.

These theorists, in regard to "administrative re-
sults," forget that nothing is free, that everything
must be paid for, and that public services are by no
means the cheapest.

However, looking at the matter from their stand-
point, let us examine the administrative results of di-
rect operation by the state and the municipality and
see in how far their statements are borne out by the
facts.

271

CHAPTER II

THE SAFETY OF TRAVELERS UPON STATE AND
PRIVATE RAILWAY LINES

The Safety of Travelers and the State System. — The Re-
port of Albert Thomas. — Comparisons. — The Minutes
of the French Senate.

In a number of articles, published in the Annales
de la Regie Directe, Edgard Milhaud has tried to
prove that safety is absolute upon government rail-
way systems and precarious in the extreme upon pri-
vately managed systems.

The budget commission of 1912 entrusted to Albert
Thomas, a United Socialist, the compilation of a re-
port on the budget of public utility franchises. He de-
clares himself that "his report is completely perme-
ated by Socialist thought" ; and he winds up by recom-
mending the purchase of those French railways still
in private hands.

As he could not bolster up his argument with the
results of the Western railway, since a number of
accidents unfortunately interfered with such a possi-
bility, he passes it over, and speaks only of the old
state system. His argument is not lacking in courage,
because the following facts, among others collected by
Charles Macler and completely contradicting it, had
already appeared in the Journal des Sconomistes:

272

THE SAFETY OF TRAVELERS

"Basing his arguments upon the statistical studies of
Edgard Milhaud, M. Thomas maintains the bold theory
that safety is assured only on railways operated by the
state. The argument of MM. Milhaud and Thomas is
rather naive. There are more accidents upon the rail-
ways of the United States than upon those of the Bel-
gian line; there are more upon the English company
system than upon that of the Prussian government sys-
tem; there were more accidents upon the Swiss railways
before than after the purchase; consequently, there are
more accidents in France upon the systems operated by
private companies than upon the state system. 'However
surprising this declaration may appear to many,' says
M. Thomas, 'the fact is scientifically established.' Sur-
prising, in fact, especially just after the catastrophes of
Villepreux, Courville, Bernay, Ponts-de-Ce, Saujon,
Montreuil-Bellay. As to whether the theory is scien-
tifically established, let us see :

"In the first place, if we compare the railway acci-
dents upon the systems operated by private companies
with our old government system (we pass over the
Western system, as M. Thomas has done), we declare
that, according to the statistics of the ministry of Public
Works, the total average number of passengers killed
and injured from 1905 to 1909 was :

Passengers Killed and Injured

Government T Private
Systems Systems

a. Per million carried i-S8 0.79

b. Per million passenger kilometers 0.03 0.02

c. Per million train kilometers 2.01 1.46

"In whatever manner we examine the statistics, the
average number of victims of accidents resulting from
traffic upon the old government system, the so-called
model system, is noticeably higher than upon the private

273

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

systems. The preceding period, that is to say, 1901-1905,
gives precisely the same results. If we consider sep-
arately the number of the killed and injured, the results
in the case of each of the above items are disadvantage-
ous to the state.

"When we pass on to a comparison of accidents be-
tween the French systems as privately operated and the
principal foreign government systems, we discover that
the victims of accidents have been much less numerous
upon the first than upon the second. We borrow our
figures from the latest statistics, those of the year 1909.

"First, let us take Belgium. Here are the figures pre-
sented by the report of Belgian railway operations com-
pared with the statistics of the Ministry of Public Works
in France:

Belgian French

Government CompanieB

Per million passen-JKilled 0.03 o.oi

gers carried ^Injured 2.67 0.46

Per million passen-$Killed 0.0015 0.0005

ger kilometers ...JInjured 0.12 o.oi

"The superiority of the French companies is incon-
testably shown.

"Let us take Germany. The following figures are
taken from the Annuaire Statistique pour I'Empire Alle-
mand, published by the Imperial Statistical Bureau :

Per million passen-JKilled 0.08 o.oi

gers carried ^Injured 0.38 0.46

Per million passen-5Killed 0.003 0.0005

ger kilometers ...^Injured 0.016 o.oi

"The advantage is again on the side of the French
companies.

274

THE SAFETY OF TRAVELERS

"Let US take Austria. Here are the figures taken from
the report of the operation of the Austrian government
railways, published by the Ministry of Railways:

A_^_-. French

Austna. Companies

Per million passen-JKilled .... o.oi

gers carried ^Injured 2.25 0.46

Per million passen-5Killed .... 0.0005

ger kilometers ...Jlnjured 0.07 o.oi

"Here, again, the advantage is altogether on the side
of the French companies, in so far, at least, as the num-
ber of injured is concerned.

"Now Hungary. Here are the figures drawn from the
statistics of Hungarian railways, published by the min-
istry of Railroads :

Hungary com^f^e.

Per million passen-5Killed 0.23 o.oi

gers carried ^Injured i.oi 0.46

Per million passen- J Killed 0.007 0.0005

ger kilometers . ..^Injured 0.03 o.oi

"Once more the advantage is with the French compa-
nies.

"Let us take Switzerland. The figures are taken from
the statistics of Swiss railways, published by the Federal
Postoffice and Railway department:

Swit«rland c^^^.

Per million passen-$Killed 0.13 o.oi

gers carried injured 0.74 0.46

Per million passen-JKilled 0.008 0.0005

ger kilometers . ..JInjured 0.03 o.oi

"In all cases the advantage is with the French compa-
nies. It may be said positively that the safety of pas-
sengers is much greater upon the systems of the French

275

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

companies than upon those of the French, Belgian,
German, Austrian, Hungarian, or Swiss state lines. This
conclusion is again borne out by the figures regarding ac-
cidents of all kinds per loo km. operated. While the
figure is 3.81 for the French private lines, it is 5.9 for
Germany, 10. i for Italy, 12.5 for Austria, and 50 for
Switzerland.

"Nor is this all. If we compare the statistics of acci-
dents in those foreign countries where public and private
operation exist concurrently, we find that accidents are
more numerous upon the state-owned systems.

"In Austria and in Switzerland the accident statistics
of private lines are not given separately, but a compari-
son between the figure for accidents upon the government
systems considered alone and upon the whole railway
system of each country makes clear the measure in which
this last figure is influenced by results on private lines.
The number of accidents resulting from traffic on all the
lines together is smaller than that of the accidents upon
the state systems alone, which proves that accidents are
much less numerous upon private systems than upon
government lines. Here are the figures :

Per Million Pasaengers Carried

Austria Switzerland

Government Pederal Federal and
Government and ti.,;\ZJS, Company

Companies Railways Raii^^ys

Killed 0.13 o.ii

Injured 2.25 1.98 0.74 0.72

Per Million Passenger Kilometers

Killed .... .... 0.008 0.009

Injured 0.07 0.06 0.036 0.036

"Finally, let us take the statistics of the victims of
accidents, including both passengers and employees. The
question of the safety of operation is well worth examin-
ing from this point of view.

276

THE SAFETY OF TRAVELERS

"We find that the whole number of killed and injured
per million train kilometers is 4.49 on the French pri-
vately operated systems, as against 15.3 on the Belgian
government system ; 7.6 upon the Austrian government
system; 8.1 upon the Hungarian government system;
40.1 upon the Swiss railways (23 upon the Swiss compa-
nies) ; 5.10 upon the German railways; and 32.4 upon
the Italian railways.

"After having seen these figures our readers will find
the contention of Albert Thomas still more surprising.
In all the European countries that we have passed in
review, safety is greater upon the private lines than
upon those of the government. It is a fact established by
official statistics."

On August 4, 1907, the accident on the Ponts-de-Ce
took place, resulting from the disregard on the part
of the government of my order of 1891 for the an-
nual inspection of steel bridges. This accident caused
the death of 30 passengers. In August, 1910, the
accident at Saujon, near Bordeaux, occurred, causing
the death of 40 passengers. On June 18, 19 10, came
the accident at Villepreux, upon the Western railway,
when 18 deaths were reported; and, on September 10,
19 10, the accident at Bernay, when there were also
deaths. February 14, 191 1, occurred the accident at
Courville, which caused the destruction of an entire
family and ten other deaths.

The six greatest railway accidents that France has
suffered during five years have thus all occurred on the
government system : three on the Western, and three
on the old government system, which the state has
operated during nearly 35 years, and which has only

277

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

2,292 kilometers (1,433 miles), making the line about
fifth in size of the important systems of France.

On November 24, 191 1, the accident at Montreuil-
Bellay inspired a discussion in the Senate, which re-
sulted in the following resolution :

"The Senate proffers the assurance of its profound
sympathy to the victims of the catastrophe at Montreuil-
Bellay and its congratulations to the rescuers, and, after
taking cognizance of the declarations of the minister of
Public Works that efforts are being made to improve the
deplorable condition of the Western line and expressing
its confidence in the ability of the government to put an
end to the insecurity and also to the irregularity of rail-
way operation, lays the resolution on the table."

Thus the Senate, with the approbation of the min-
istry, solemnly affirmed "the deplorable situation, in-
security, and irregularity in the operation of the Wes-
tern," apropos of an accident which occurred on the
old state system.

The Journal Oificiel, of July 12, contains the fol-
lowing question, put by M. Engerand, deputy, to Jean
Dupuy, minister of Public Works :

"What is the number of engines, coaches and freight
cars destroyed or damaged in accidents which have hap-
pened upon the Western railway from January i, 1909,
to March i, 1912?"

He received the following answer :

"68 engines; 30 tenders; 198 coaches; and 451 freight
cars."

278

THE SAFETY OF TRAVELERS

If the Socialists cannot cite the financial results of
the state system as an argument in favor of the na-
tionalization of the railways, the ill digested state-
ments of Edgard Milhaud and Albert Thomas, regard-
ing the security they offer, will certainly not convince
anyone.

279

CHAPTER III
DISORDERS, DELAYS AND ERRORS

1. Telephones. — The Report of Marcel Sembat. — The Office

in the Rue Gutenberg. — Motives Dictating the Choice of
the Site. — Consequences. — The Commission of 1900-
1905. — "A Wise Delay." — M. Steeg.

2. The Administration of the Telegraph. — Technical and

Operating Services. — Maintenance. — The Underground
System of Paris. — The Lost and Found Cable. — The
National Printing Office Again. — Lack of Foresight of
the Tobacco Monopoly. — Construction of Government
Buildings in Paris. — Misinformation. — The French
Minister of Agriculture. — The Naval Intelligence De-
partment. — Increase of State Functions Increases Diffi-
culty of Control.

In his character of Socialist Marcel Sembat wishes
the state to take over all public utilities. Yet, as re-
porter of the budget of the postoffice, telegraph and
telephone systems, included in the general budget of
1906, he has demonstrated very clearly what becomes
of a trading enterprise in the hands of the state.

When the telephone first appeared in France the
government, considering that it would be hazardous to
attempt its operation, granted to private interests the
authority to take upon themselves this experiment at
their own risk, reserving, however, the right of buying
back the powers thus granted, together with the prop-

280

DISORDERS^ DELAYS AND ERRORS

erty accumulated, for a compensation to be agreed
upon. In 1880 the Societe Generate des Telephones
was incorporated. The franchise granted would have
come to an end September 8, 1884, but it was extended
for a further period of five years.

On July 12, 1882, the government obtained an ap-
propriation of 250,000 francs to establish lines at
Rheims, Roubaix, Pourcing, Troyes, Nancy, etc.,
where the Societe Generale des Telephones was not
operating. After some months of operation the gov-
ernment declared that it was realizing profits at a rate
50 per cent, lower than that of the company. Septem-
ber 8, 1889, that is to say the date of the expiration
of the franchise, the government established the tele-
phone monopoly.

The purchase of the company's equipment had been
authorized by the law of July 16, 1889. The govern-
ment offered 5,068,836 francs, but by an order dated
May, 1896, the Council of State rendered judgment,
ordering the government to pay 9,313,000 francs,
which, with interest, ultimately increased to 11,334,-
338 francs, or 126 per cent, more than the original
estimate.

M. Sembat says :

"In replacing private enterprise the state had no inten-
tion of borrowing its methods. This was announced in
the very beginning. The first act of the government fur-
nished a joyful augury for the future. It lowered the
rates on subscribers' contracts. It was impossible to
know whether the government was going to sell service
at a loss. It fixed its rate at a venture. The desire was
to confer a boon rather than to launch a great industry."

281

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

Thus in the very beginning the actual price of the
purchase exceeded the estimate by 126 per cent., and
rates were "fixed at a venture."

As a matter of fact, the extension of time granted
the Societe Generale des Telephones had been far too
short. No industry can establish itself and pay off its
capital in five years. Therefore, when the government
replaced the company, the latter's equipment was be-
hind the times. In certain cases the intervention of
four operators was necessary to bring about one con-
nection. In America and in several Belgian cities mul-
tiple switchboards, so named because the terminal
point of all subscribers' lines wired to the same ex-
change is repeated before each operator, were already
in use. A single employee sufficed to connect two sub-
scribers on the same switchboard. The French depart-
ment had experimented with this system at the Wag-
ram exchange.

"But," says M. Steeg, in his report on the budget of
1907, "despite the promised advantages, for want of
money, time and space, the first installations of this new
type have been greatly limited. Besides, the work has
been done rather under the pressure of immediate needs
than in the execution of a comprehensive plan."

Other difficulties also arose. The operators were
unprepared for the new system. The plan of calling
subscribers by number, as required by the multiple
switchboard, instead of calling them by name, as was
the custom under the old system, bothered the opera-
tors. It was finally decided to decrease the number
of exchanges and to establish three large ones on the
right bank of the Seine.

282

DISORDERS, DELAYS AND ERRORS

Now a business man under existing conditions would
have sought the most commodious site in order to
establish his principal exchange. But not so the gov-
ernment. The convenience of the chief telephone ex-
change was subordinated to the needs of the Postoffice.
Although constructed only ten years before, the Post-
office building was completely outgrown. The officials
did not know where to keep the mail wagons. The
opportunity afiforded by the establishment of the new
exchange was too good to be lost. The Rue de Guten-
berg — a short thoroughfare — was condemned and
closed, and a telephone building following the line of
the curb constructed. The lower floor of the new
building, however, was given over as a shelter for the
mail wagons.

And here is another curious point ! The Telephone
department had been anxious to do away with the old
widely scattered exchanges. But, after these had been
concentrated in the same building, connections were
made by the same methods as had prevailed when the
offices were situated in different buildings.

As a consequence, and since it was necessary to
carry interurban service lines and the lines of three
bureaus into the same place, the department was forced
to enlarge the conduit which runs from the Rue du
Louvre to the Rue Richer through the Rue Mont-
martre, at great expense and in unusual proportions.
Finally " a special conduit is now required in the Rue
Etienne-Marcel, already over encumbered, the present
ducts being incapable of containing the too numerous
cables that must pass in this direction."

The defects of such service are easily seen. Con-

283

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

centration in the same building of bureaus to all in-
tents and purposes separate has made necessary the
relocation of a vast mass of wires involving in its
turn other undertakings on an unnecessarily vast scale.
As the whole system, the very foundations of which
are false, may have to be renewed many times, it
ought surely to be renounced.

In 1900 a commission was appointed to outline a
general course of action. It discussed the question un-
til 1905. That year two switchboards, each for 5,000
subscribers, were placed in the Gutenberg exchange.
They were not ready to use in 1907. The switchboard
for 5,000 subscribers, subsequently ordered for the
Passy exchange, has not yet been installed, as is the
case also with several other switchboards ordered for
a number of other exchanges. Considerable sums
have been spent. They have remained unproductive,
and the subscribers are still waiting.

In 1906 a contractor made the department a propo-
sition to replace the entire apparatus of the Paris sys-
tem by the common battery system, adopted by all the
great American companies, for 20,000,000 francs
($3,800,000). A committee on telephone equipment
was appointed for the purpose of examining into this
proposition, "which its contract form," said M. Steeg,
"caused to be instantly rejected." M. Steeg mentions
the rejection as self-explanatory. I confess that I do
not understand his point of view. In the interest of
the state, whenever it is possible, necessary work
should be done by a contractor. Such a proceeding
would ensure a triple advantage, viz. : a definite limit
to the sums to be appropriated, control on the part of

284

DISORDERS^ DELAYS AND ERRORS

the State, instead of exorbitant expense and abuses of
operation and, finally, responsibility of the contractor.

However, the committee, owing chiefly to the per-
sistence of M. Dennery, state engineer, who had seen
the common battery system working in the United
States, ultimately concluded to adopt it. The neces-
sary expense of equipping the Paris system, general
and private exchanges, was estimated at 4,000,000
francs ($760,000).

At last the Telephone department had a definite
plan of action. But no proof of any spirit of initia-
tive had been given ; for it was only introducing a sys-
tem already employed for several years by private
companies in the United States.

But, at any rate, the new program is at least to be
carried out expeditiously? M. Steeg answers skepti-
cally: "We dare not promise it." After which he
proceeds to gild the pill with the following glowing
rhetoric : "Like scientific discoveries, industrial im-
provements may at any moment overturn all esti-
mates. Therefore the department must not anticipate
the future too boldly."

M. Steeg may be reassured ! The department need
never be afraid of anticipating the future. It is al-
ready too far behind the times for that! Meanwhile
telephone subscribers are begging the department to
conquer their fear of too boldly anticipating future
progress at least long enough to give them a reasona-
bly speedy connection when they have summoned the
courage to ask for one.

The fire at the Gutenberg exchange gave the de-
285

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

partment another much-needed excuse for making
haste slowly.

To-day we are enjoying in Paris the common bat-
tery system. Two subscribers, connected on different
exchanges, can be connected in less than thirty sec-
onds. We never complain, however, if we succeed
in getting our party within three minutes, a certain
proof that the Frenchman is the easiest man in the
world to govern.

Speaking of the Telegraph Department, M. Dali-
mier says :^

"The French government wears itself out in sterile
investigations. When one has had some little contact
with the many-sided machinery of this complicated sys-
tem, he is struck by the lack of cooperation among the
various departments. For example, a very marked dual-
ity is evident between the technical and operating services.
Although theoretically united under the same manage-
ment, each is conducted like an autonomous department.

"The technical service appears to have made it a rule,
a point of honor, in fact, to ignore the needs of the
operating service. Apparatus is furnished which renders
effective service very difficult and prevents the carrying
out" of important changes. With more up-to-date equip-
ment, from a practical point of view, possibly a flat rate
system of subscribers' schedules might already have been
attempted in certain cities."

In the eighteenth century Voltaire reproached the
French government with not occupying itself suf-
ficiently with the question of the conservation of its

' Report on the budget of 1912.
286

DISORDERS, DELAYS AND ERRORS

resources. If we may judge by the following passage,
also from the report of M. Dalimier, this bad habit
has not yet been overcome :

"We can bear witness that the underground urban sys-
tem of Paris is in a deplorable condition. It is given
neither supervision nor methodical attention. Repairs
are made in haste and without proper oversight. The cur-
rents passing through electrical conductors are inter-
cepted in the passage and diverted from their cables
without any plan and without technical precautions.
Then the cables themselves are punctured, perforated,
and crushed in the conduits without any attention being
paid to the matter. Entire cables have been abandoned.
Certain cables have been dug up or have disappeared
under rubbish without any one having any recollection
of their being there. In this particular service negligence
has reached incredible proportions."

M. Dalimier then quotes a memorandum of the
department, and concludes :

"To sum up, it is acknowledged that the lines are in-
spected only when they cease to operate, and that, on the
other hand, when it is expedient for the force to display
exceptional zeal, it is enough for one section of a con-
ductor to be regarded as doubtful in order to replace the
whole line with a new one!"

Not only does the department neglect one system
but it can completely forget others still more neglected.
Following the meeting of the Flood Commission a bill
was prepared, including among other very urgent sug-
gestions, the construction of cables with paper insula-
tion and a sufficient mmiber of conductors along the

287

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

fortifications of Paris. The expense was estimated
at 2,000,000 francs. Fortunately, just at this moment,
an entire network with rubber insulation and cast-iron
conduits was discovered, which had been in place for
more than forty years. It was found to be in a state
of remarkable preservation, in spite of its complete
abandonment. Experts declared that, after slight re-
pairs, and at a cost of scarcely 50,000 francs ($9,500)
it could be put in perfect condition. The technical
department had utterly forgotten its existence. The
inspector of the long-distance underground line con-
nected with the operating service discovered it and
put a stop to further discussion of the bill.

The workmen employed in the National Printing
Office complain that the shops in the Rue Vieille-du-
Temple are in reality so many prisons, and that, de-
prived of air and light, they are working under the
worst possible conditions. A reporter sent out by the
Matin^ gives the following description of these shops :

"Under the escort of M. Clavel, head superintendent,
I inspected the workshops of the National Printing Office,
rummaging into the most obscure corners. I went from
the cellars to the roofs. I walked miles through dark
passages. I ascended and descended millions of steps.
I saw composing-rooms where artists executed typo-
graphic masterpieces. I saw type foundries where, amid
the poisonous vapors of melted lead, without air and
without light, half naked men were making use of proc-
esses and equipment that private industry abandoned a
quarter of a century ago. I saw old and dilapidated
printing machines under constant repair, and necessitat-

*Le Matin, January 28, 1912.

288

DISORDERS, DELAYS AND ERRORS

ing more outlay in the way of labor and expense than
new and modern machines would require. I inspected
stereotyping rooms utterly barren of the improvements
introduced of late years. I saw lithographing, photo-
graphing and engraving rooms, rooms where they were
stitching, binding, folding, fastening. I saw the utter
disorder of those cemeteries where they bury the "forms"
which are saved either because they can be used again
or because there are not enough workmen to arrange
them properly in the lettered cases provided for that pur-
pose. I saw the useless and unused reserve supply of
new type, a capital of several millions, piled up only to
justify the employment of too large a number of foundry
workers."

In igo8 the popular brands of tobacco gave out.^
Why?

When a good business man sees his business in-
creasing he is careful to devote a part of his profits
to the improvement of his methods of production.
The Tobacco department was able to show, in 1902,
421,000,000 francs in gross receipts; in 1903, 435,-
000,000; in 1904, 448,000,000 francs. But the gen-
eral budget was short. It therefore absorbed the
whole sum, instead of setting something aside to im-
prove the equipment of this special fiscal monopoly.
Just at this time, and when the consumption of to-
bacco was steadily increasing, the working hours of
the laborers in the tobacco factories were reduced
from 10 to 9. As a result, there was a 10 per cent,
loss of production. The equipment was in no position
to ofiFset this labor loss ; hence the deficiency.

' See Le Client

289

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

In 1905 the department obtained some hundreds
of thousands of francs from the budgets of 1906 and
1907, to improve its equipment and factory build-
ings. These appropriations, however, were tardy and
insufficient.

I do not mean to imply that the officials of the
Tobacco department had not foreseen the necessity
for this work, but there was no way of forcing the
minister of Finance to grant them the necessary loans
in time to be of service. Administrative delays are no-
torious, and individuals who rebel against them are
sternly taught their place.

The reconstruction of the J. B. Say school has lasted
(1912) more than twenty years. The construction
of the school of industrial physics and chemistry
(I'ficole de Physique et Chimie Industrielles), in the
Rue Vauquelin, was decided upon in 1898, but the
first order was not signed until 1908.

That misinformation as to actual conditions prevails
in government administration is generally acknowl-
edged. On May 17, 1912, the French ministry of Ag-
riculture — in its estimate of the reforms which would
be brought about by a lowering of the price of wheat
— made a miscalculation of 5,000,000 cwt.

In 1909 the Naval Intelligence department caused
a panic in Great Britain by announcing that Germany
would have 13 dreadnoughts in 191 1 and 20 in 1912.
Mr. Balfour aggravated these forecasts by announc-
ing that Germany would have 17 dreadnoughts in
191 1 and 20 in 1912. As a matter of fact, they will
have only 13 in 191 3.

290

DISORDERS, DELAYS AND ERRORS

M. Perrissoud, reporter of the state railway bud-
get of France, has declared that "the state ought to
be a model employer and give to the taxpayers the
largest opportunities of regulation."

The taxpayers cannot control government under-
takings directly; they can only regulate conditions
through their representatives.

The report of Emmanuel Brousse, on the regulation
of the budget of 1907, and of Louis Marin, on the
budget of the ministry of Foreign Affairs for the
present fiscal year, are sufficient evidence of the diffi-
culties experienced in attempting parliamentary regu-
lation.

The more functions exercised by the state, the
greater the effort required to control its various
activities.

291

CHAPTER IV
OFFICIAL CONSERVATISM

Industrial Progress Due to Individuals Not to Govern-
ments. — Official Conservatism. — Dread of Innovation. —
Departmental Drinking Water. — The Grinding Stones
of the Bureau of Public Charities. — Telephones. — Pri-
vate and Public Management. — Causes of the Back-
wardness of the Electric Industry in Great Britain. —
Tools in the Workshops of the Ministry of War. —
Labor Economy. — Work for the Workers and Not for
the Service.

Industrial progress is due to individuals, not to
governments. No state discovered gravitation, and,
if humanity had waited for governments to apply
steam and electricity to our daily needs, we should
have neither railways, telephones, nor telegraphs.

The official is naturally a conservative, and every
innovation frightens him, because he is never sure
how it will turn out. If he is progressive he is
thwarted by the inertia of the organization of which
he is a member. Should we go so far as to imagine
the administrative group to which he belongs as being
other than inhibitive and inert other groups would
still have to be considered. In any case, it is always
necessary to obtain appropriations or special authority
beforehand in order to establish any public undertak-
ing. By insisting upon changes he must assume some

292

OFFICIAL CONSERVATISM

risk, even if it is only a burden of responsibility, and,
as the personal hazards to be run are great, and the
personal profit contingent or insignificant, things are
generally left as they are.

This administrative lethargy is found even in those
government or municipal enterprises which ought to
be most progressive.

For example, the ministry of Public Works in
France is entrusted with the supervision of the Paris
water works. When I became minister in 1889 I
found, to my great astonishment, that the minister and
the employees of the bureau had nothing to drink but
the water of the Seine. According to the Matin, of
March 20, 1906, the minister of the Interior, whose
department includes that of Sanitation, was drinking
Seine water at that date. The Bureau of Public Chari-
ties of Paris is still using grinding stones; it is con-
sidering transforming them into cylinders. Such
facts as these, however, never hinder public officials
from making complimentary speeches and reports ex-
tolling the foresight, solicitude and competence of
the government.

The Swiss Federal railways have always been op-
posed to the creation of new lines which might involve
competition. In fact, the department has demanded
that every new franchise be submitted to it. Its de-
cision was unfavorable to the Loetschberg and Mou-
tiers-Longeau line, which is to bring the canton of
Bern into direct connection with the Simplon tunnel.
Although the canton of Bern has been able to over-
come this opposition, weaker cantons may not be able
to do so.

293

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

I have already outlined the rivalry of the Prussian
railways and the waterways.

The different state departments cherish a certain
esprit de corps, and each considers as an attempt made
against itself any proposition, however useful, which
might interfere with its own development.

In his book entitled Public Ownership of Telephones
on the Continent of Europe,''- A. N. Holcombe states
that, except in Germany and Switzerland, the telephone
has been introduced by private enterprise throughout
all Europe. To-day, except in Denmark and Spain,
this practice has been given up. A government having
centralized the administration of the telegraph could
not consistently permit the telephone to remain in the
hands of private interests. When the telephone first
appeared it was universally opposed by the conserva-
tive departments in charge of the public telegraph
service. They saw in it a competitor whose influence
must be counteracted. Later, as soon as it was per-
ceived that the new utility would survive such treat-
ment, nearly every government decided to absorb it.

When the telephone in its turn had become a gov-
ernment service it also systematically opposed the de-
velopment of all other electrical industries, especially
those using currents at high frequency, in order to
protect their weaker current systems. Technical prog-
ress would assuredly have been more rapid under a
system of competition. On the whole, Mr. Holcombe
is favorably impressed with the organization of the
German telephone service, but he states that in 1902

' Howard Economic Studies, VoL 6.
294

OFFICIAL CONSERVATISM

the telephones were four times more numerous in the
United States than in Germany.

In Great Britain, in 1880, the telephone was legally
declared to be a telegraph, and ultimately it became
a monopoly under the postmaster-general. In 191 1
there were only 644,000 telephones in use in the Uni-
ted Kingdom, while if the proportion had been the
same as that of the United States it would have had
3,000,000.^

At the annual dinner of the Institute of Electrical
Engineers, February 2, 191 1, its president, S. Z. Fer-
ranti, said:

"We shall never know what the municipalization of
electrical undertakings has cost us. It has retarded prog-
ress and is largely responsible for the backwardness of the
electrical industry in Great Britain." ^

In reporting the 191 3 budget of the French ministry
of War the Secretary, M. Benzet, writes :

"I have observed that the equipment is everywhere
inferior to that of corresponding private undertakings,
and, when I ask the superintendents, 'Why do you not
make use of such or such an up-to-date machine in gen-
eral use abroad as well as in France ; or else, as those you
have are good enough machines although they are fewer,
why not multiply them since they yield such excellent
results?' I invariably receive the same answer: 'We
cannot waste our time over the question of equipment

^ Communication of Laws Webb to the London Chamber of
Commerce, Morning Post, February 18, 191 1.
^The Electrical Review, February 10, 191 1.
295

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

because, as a matter of fact, that question never comes
up in army and navy institutions.'

"And, gentlemen, this fact is only too evident; for, in
getting to the bottom of things, I have found we vote ap-
propriations for army and navy establishments without
even counting them. We pour out the savings of the
entire nation for the national defense to ensure the
production of munitions of war, and yet it is only at the
close of the fiscal year, if there is any money left, that
we even think of equipment.

"Here is industrial inconsistency for you. A nation
that pretends to be a manufacturer begins with produc-
tion and it is not until later that it takes up the question
of the efficiency of its indispensable machinery. It is
scarcely credible that conditions such as those which I
am about to describe can actually be rife at the present
day.

"In the existing system of operation, when production
is heavy there is a large demand for machinery; but
this is also the time when attention to equipment can
least be spared, because when production is heavy there
is nothing left at the end of the year to devote to equip-
ment.

"On the other hand, when production begins to slacken
and, consequently, manual labor is in little demand and
it might be possible to employ it in repairs and construct-
ing machinery, then, according to the regulations in vogue
for many years, the working force must be reduced."

The Secretary afterward strove to prove that the
"distressing delays" in the work of the army and
navy establishments were due in large measure to
extreme bureaucratic centralization. He then ex-
plained in detail the complete cycle through which a

296

OFFICIAL CONSERVATISM

single order of the government must pass, and con-
cluded :

"I was anxious to discover how much time would be
required to fill the simplest order. I found that no order
could be executed in less than 95 days and in three-quar-
ters of the cases the work would require 155 days. If,
by an unfortunate chance, however, there is the smallest
modification necessary, eight months, ten months, and
even more are required.

"The result, as may be readily seen, is, in the first
place, to cause a serious interruption in the service. I
have known cases where establishments have had to hold
up pressing orders to get the necessary authority from
the minister for the funds required to carry out the
order and deliver it before it would be too late.

"I have already spoken of the high cost of such work.
This is due to the fact that the superintendents, knowing
that there will be a considerable delay before they can
obtain the necessary authority, seek to make up for lost
time as far as possible by shortening the time of de-
livery."

As for the administration of the telegraph in
France this is what I find in the Dalimier report:

"After much hesitation the department has decided
to adopt the installation of a telegraph 'multiple.' The
first appropriations were made in the 1911 budget, but
the preliminary investigations could not have been very
thorough, since, despite the stations established since
1903 in the cities above mentioned, and in which the
'multiple' system is in operation, it was necessary, in
July, 1911, to appoint technical experts to examine these
systems with a view to choosing a system adapted to the
needs of Paris."

297

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

Protectionists and Socialists are forever harping
on the old strain that governments and municipalities
"ought to provide work for workers." The enterprises
resulting from such efforts, far from bringing about
labor economies, must always increase labor expenses.
Among the excuses assigned for shorter hours of
work is found the argument that if each worker does
only half duty there will be work for two workers.
Then, not only must the working hours be short, but
there must be no over-production during the time spent
by the workmen in factory or shop. We encounter
everywhere protestations against piece-work and de-
mands for work by the hour "at which nobody need
kill himself." And not only must each man profit
in some measure by the right to be lazy, proclaimed by
Laf argue, but if he does not do the work for which
he is paid he is accomplishing a duty of high social
consequence by leaving work for his comrades.

If the superintendent of the workshop wishes to
introduce a machine which could do the work of four
workmen he is accused of taking the work from the
laborer instead of giving it to him. Consequently
he immediately antagonizes all the labor organizations
and all the municipal or government employees. He
is starving the people. He is neglecting the funda-
mental duty of government and municipal undertak-
ings. He is a traitor. And, as an official must be a
hero in order to face all this wrath, he is generally
careful not to provoke it. If he learns that somewhere
a machine is doing the work that he succeeds in get-
ting done only by heavy expenditure for labor, he is

298

OFFICIAL CONSERVATISM

careful not to ask for it. If he can he will be ignorant
that such a machine exists.

The material and moral depression evident in every
state and city undertaking is easily explicable with
the above facts in mind, and I have frequently re-
ceived extraordinary confidences on this subject.

The Socialist is accustomed to declare that he and
his comrades are not enemies of progress, and, in
spite of the facts, he will treat as calumniators those
who accuse him of it. He declares that Socialists are
not hostile to new processes, nor to new machinery,
except when they put the workmen out of work and
do more work at less expense. It follows that he ac-
cepts the new processes and the new machinery on
condition that no economy is involved in their use.^

But then, what is the use?

* See Yves Guyot, Science Sconomique, 4th edition, page 230.

m

CHAPTER V
LABOR

1. "The Government a Model Employer." — Raising Sal-

aries, Reducing Hours of Labor, Lessening Returns.

2. Increasing the Number of Employees. — Government

Railways. — Australia.

3. Salary Increase in Paris. — Jewelers Turned Street

Sweepers. — Amalgamation.

4. Direct and Indirect Salaries. — Outside Work of the Em-

ployees of the Navy Yards. — Increase in the Cost of
Construction.

5. Employees of the Western Railway.

6. Pensions. — "Active Service" According to the Law of

1876. — Difficulties in the Way of Equitable Wage and
Pension Adjustment.

7. The English Trade Unions and Over-Generous Munici-

palities. — Influence of Associations of Municipal Em-
ployees.

8. Salaries of the Miners in the Mines of the Saar District.

9. Unproductive Character of the Work of Government

and Municipal Employees. — Benjamin Welton and the
Inefficiency of Municipal Service in the United States.
— Causes. — The Sewer Diggers of Manhattan.

10. "Laborophobia." — The Employees of the Western Rail-

way of France.

11. The Employees of the Swiss Federal Railroad. — Recall

of M. Renault and the Strike on French Government
Railways. — "Syndicalist Action Recognized by the
Western State Railway." — M. Goude and the Navy
Yard at Brest. — An Insulting Salutation. — School
Teachers. — General Labor Confederation. — Defective
300

LABOR

System of Instruction. — The National Printing Office
and the General Labor Confederation. — The "P. T.
T." — Liberty of Opinion. — Outrage and Menace. — The
Austrian Chamber of Deputies and the State Railway
Employees.

12. "An Industrial Budget." — Employees the Actual Proprie-

tors of the Service. — The Prophecy of Numa Droz. —
Technical Skill. — A Switchman, Minister of Public
Works. — The Program of the Employees of the Na-
tional Printing Office.

13. The Ideal Administration. — Why It Won't Work. — In-

termeddling.

14. Political Danger of Government and Municipal Under-

takings. — Employees the Masters of Their Employers. —
Government of New Zealand and the Strikers. — Em-
ployees Forbidden to Take Part in Public Affairs. — An
Ineffectual Prohibition. — ^Excluding British Municipal
Employees from the Franchise. — Suppression of Poli-
tical Rights Is the Inevitable Consequence of Develop-
ment of Public Operation.

15. Rules for the Model Government Employer.

I. "The government ought to prove itself a model
for all other employers." Such is the stereotyped
phrase in general circulation in Socialist circles, and
all those who repeat the phrase mean by it that the
state shall raise wages, shorten hours of work, and
be satisfied with a smaller return from labor.

As a matter of fact, this conception of the model
state is one of a robbery of the whole body of tax-
payers for the sake of the minority who will profit by
it. Yet many taxpayers seem resigned to having such
a conception realized at their expense, and the more
democratic the state the more imperative are the de-
mands of privileged classes, and the more chance there
is of their ultimate triumph.

301

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

2. The least of the claims of the average employee
consists in demanding an increase of workers for the
same amount of work. This is one way of providing
work for workers, and we may be certain that the
latest comers will never close the door.

We have seen how such labor increases work out
in the case of the government railways.

In Australia, with the Labor party in power, the
number of employees is still increasing. On the first
of January, 191 1, the Australian Federal Government
had 15,120 employees, receiving £2,098,500 in wages;
but on January i, 1912, they aggregated 16,200,
with salaries amounting to £2,720,000.

3. The general report of Louis Dausset on the
municipal budget of Paris for 1912 contains most
interesting information concerning the burden im-
posed upon the budget of the city and upon the bud-
gets of the various local governments by the growing
exigencies of their employees.

The table given below shows the considerable in-
crease in the average salaries of Parisian municipal
workers between 1890 and 1912 :

1890 190S 1912
The effective working

force of the city. . 8,152 io,972 12,131

Expenditures (frs.) . 10,941,234 22,395,565 27,259,541

Average salary (frs.) 1,342 2,043 2,289

Or, in other words, an increase of 70 per cent, in
22 years.

It should be well understood, moreover, that the
net cost of the various municipal activities has also
considerably increased. "It appears, in fact," says

303

LABOR

M. Dausset, in a memorandum coming to us from the
Public Highways Service, "that the net cost per square
meter for street cleaning has risen from o franc 381
in 1893, to o franc 417 in 1896, o franc 476 in 1902,
o franc 513 in 1908, o franc 557 in 19 12. This last
increase, however, should be ascribed to improvement
in equipment. The increase in labor expenses shown
by the budget of 1912, over that of 191 1, amounts to
more than 5,000,000 francs for the municipal em-
ployees, properly so called.

From 1908 to 19 12 the concessions granted the
employees out of municipal funds have called for an
expenditure of 16,625,000 francs, of which 3,976,875
francs went to the working force connected with the
prefecture of the Seine; 4,789,794 francs to the em-
ployees of the gas works, and 473,193 francs to the
various electrical plants.

Moreover, bills passed up to the present have
pledged the future to supplemental expenditures of
about 3,000,000 francs, which will insure to municipal
laborers, who constitute the most numerous class of
municipal employees, an average salary of 2,356
francs.

Now street sweeping has thus far been a monopoly
of unskilled labor. But what if it should occur to
skilled workers — jewelers, for example — lured by the
superior advantages enjoyed by the gentlemen of the
broom, to take their place ? What then would become
of the street sweepers ?

As a matter of fact and as a natural consequence of
its economic unsoundness, this increase in salary, far
from being an advantage to those for whose benefit

ao3

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

the Municipal Council designed it, has actually re-
sulted in a reclassification of labor downward.

At the same time it is taking workers away from
trades in which they have passed years of appren-
ticeship. The inevitable result of such labor condi-
tions is only too well illustrated by the industrial dis-
turbances at Sheffield.

Then the condition of the municipal employee of
Paris has been improved, not only by an increase in
his salary, but also by a decrease in his hours of work.
M. Dausset says :

"In our desire to improve the condition of municipal
employees we have sometimes been reproached with hav-
ing lost sight of the general interest as well as the most
urgent needs of the public service.

"This criticism has been especially directed toward the
street cleaning service. It has been said that, while the
work to be done has notably increased, the number of
working days is rapidly diminishing, following philan-
thropic measures passed one after the other in favor
of the employees. Full pay for two days' rest a month;
sick days ; an annual vacation of lo days, lately brought
to 12 ; noonday rest, etc. The laborer in the street clean-
ing department who in 1893 furnished annually 3,410
hours' work, in 1896 furnished only 3,250; 3,230 in 1908;
and 2,940 in 1909, or, in 1908-1909, a decrease of 9.5
per cent."

Now when a state or a municipality contracts with
a middleman for any kind of service it should have
but one thought in mind : net cost and quality of the
service.

It ought to aim, above all, at economy; because all

304

LABOR

favors and privileges granted by statesmen or adminis-
trators are paid for by the taxpayers.

The Municipal Council of Paris recently withdrew
entirely from the direct administration of its gas
works, but it subsequently abandoned its principle of
non-interference when it agreed with the operating
gas company to introduce into the contract between
itself and the said company the alliance of employees
of the gas works with municipal employees.

Here is the result of this agreement, according to
M. Dausset's report:

"Whereas before the alliance the salaries of the
gas employees varied from 1,200 to 3,300 francs, imme-
diately after it the average salary of the two most im-
portant classes of employees in this industry, viz., cleri-
cal workers and inspectors, rose to 3,347 francs follow-
ing automatic promotion into the first employee class of
a very large number of employees by reason of their
length of service.

"Collectors saw their maximum salary rise from 1,800
francs to 3,000 francs and their commission from 50 to
100 francs.

"The incessant increase of expenditures under the
head of employees exceeds the economies resulting from
the improvements introduced into the manufacture of
gas. Unfortunately, new excuses for further expendi-
tures are constantly arising, and dangerous precedents are
being established without any corresponding decrease in
the number of claims. No sooner is one claim satisfied
than another bobs up, the more urgent and the more
frequent in proportion to the amount it is going to cost
the city.

"The labor expenses which in 1908 were 30,819,595

305

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

fr. 14, amounted in the following year to 31,726,165 fr.
22, and, in 1910, to 33,382,850 fr. 30, out of which 11,-
439,896 fr. 15 went to salaried employees and 21,942,954
fr. 15 to laborers.

"An estimate may be made for the current year (1911)
amounting to a sum total of 34,525,000 fr., out of which
12,055,000 fr. will go to employees and 22,470,000 fr. to
laborers.

"The increase, according to the report of 1910, is thus
1,142,149 fr. 70, divided as follows:

Fr. c.

Employees 615,103 85

Laborers 527,045 85

Total 1,142,149 70

"Now, on December 31, 1910, the effective working
force amounted to 3,076 employees and 9,354 laborers.
But on November i, 1911, this number had shrunk to
3,086 employees and 9,195 laborers, a net decrease of
149 workers. On the other hand, it must be remembered
that the working force will again increase, as it does each
year from November to December 31, through the enlist-
ment of extra men, and in proportion to the amount of
manufacturing undertaken.

"In 1905, the last year of operation of the Paris gas
company, the labor expenses amounted to only 24,038,951
fr. 59. Therefore, in 6 years, and excluding supple-
mentary pension charges, there has been an increase of
more than 10,000,000 fr., by which gas employees of all
classes have benefited. While the condition of our budget
has not as yet permitted us to realize the decrease in the
cost of gas, by which the whole body of consumers will
profit, the new privileges which we have awarded to the
employees represent more than 2 centimes per cubic meter
of gas manufactured. In addition to that we give out-

306

LABOR

right each year to the gas employees a profit of twelve
additional centimes."

"At this rate the employees of the gas department
will end by cutting out all profit," says M. Caron,
former president of the Municipal Council.^

In 19 12 the employees of the gas company com-
plained to the Municipal Council of Paris. The fore-
men demanded an indemnity for delay in promotion
as guaranteed by their alliance with municipal em-
ployees. Whereupon the administration and the
Municipal Council promptly recanted. M. Dausset
says in his report : ^

"It is an erroneous interpretation of the agreement
entered into with the gas company to hold that it has
become completely identified with the public service of
the city in all the details of its internal organization and
functions. The gas company is, of course, expected to
conform to the wage or salary scale, and to the regula-
tions governing pensions, vacations, working conditions,
etc., in force in the municipal service. Nevertheless,
each department maintains its separate organization and
its own proper functions. Irregular promotions may oc-
cur and the necessities of the service can bring about
the establishment of new grades in one department,
the creation of which would not be justified in the other.
Although the prefect of the Seine has consented to a cer-
tain number of high-salaried positions for the benefit of
the employees of the gas company, he has done so only
from a sentiment of good feeling toward a personnel
which merits our sympathies ; but this measure ought not

'- Societe d'Economie Politique. See Journal des Economistes,
December, 1911.
' Conseil Municipal de Paris, 1912, No. 46.

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

to be considered as a necessary consequence of the amal-
gamation."

That these observations of M. Dausset are perfectly
reasonable is evident enough. But they necessarily
undermine the system of amalgamation by proving
that it cannot be complete. Further on he says :

"We do not believe that there is any reason for making
a new extension of the system of amalgamation in favor
of chauffeurs. The same thing may be said in the case
of the bag makers who are demanding to be amalgamated
with the street sweepers."

So far as the waste collectors are concerned the
committee refused them an increase of salary. How-
ever, since the cash clerks of the city were receiving
a commission of 300 francs, while that of the collec-
tors was only 100 francs, "there is a manifest injustice
here," says the report; and the administration is rec-
ommended to raise the compensation of the latter to
the higher figure.

4. In all government service there are both direct
and indirect salaries.

To all appearances the Navy pays laborers in the
navy yards low salaries : from 3 francs 80 to 4 francs,
compared with 5 francs and above in the industry at
large. But the difference, says the report of the Com-
mittee on Labor Accounts, is very much less when
we consider the various advantages enjoyed by the
employees of the Navy — pensions, direct and indirect,

308

LABOR

insurance against nonemployment, treatment at hos-
pitals or at home, etc.

As a basis of comparison M. Rousseau takes one
day's work on the Jean Bart. In this way he obtains
a standard wage of 4 francs for a working day of 8
hours; apprentices included, foremen not included.
This makes 5 francs 1 5 for a ten-hour day ; more than
the average salary in private undertakings. Nor does
this figure include either pensions or vacations at full
pay (which increase the annual salary by 4 per cent.),
sick benefits, pay during dull seasons, or "even the lib-
eral allowances which may be granted by any minister,
such as pay without corresponding work for two days
at Christmas and New Year's, or, in round figures,
440,000 francs, of which a simple ministerial signature
can relieve the treasury."

The effect produced upon the cost of naval con-
struction in our navy yards by the shortening of the
working day, as well as by vacations at full pay, for
which the budget of 191 1 granted the first appropria-
tion, is shown by the following table, which estimates
the cost of the work on the Jean Bart, on the basis of
a 9 J^ -hour day, an 8-hour day, and a 7-hour 40-min-
ute day, the latter corresponding to an 8-hour day
shortened by the fraction 1/24, representing 15 days
of vacation with pay.

The Committee on Labor Accounts declares that
"the new institutions in the Navy, by reason of the
8-hour day, find themselves at a disadvantage, com-
pared with the industry at large, both from the point
of view of rapidity of construction and net cost."

309

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

The salary remaining the same for a day of

9 hrs. 30 min. 8 hours 7 h". 40 min.

The construction of the
Jean Bart would require:

Days 1,515,790 1,800,000 1,880,000

Or in money (francs) 6,230,000 7,400,000 7,727,000
The minimum pension (25
years of service) is ob-
tained by an active serv-
ice during:

Hours 71,250 60,000 57,450

The construction of the
Jean Bart gives pension
rights to :

Men 202 240 250

The relative annual charge
resulting is:
Francs 121,200 144,000 150,000

M. Cuvinot, who reported on the Navy budget in
the Senate, has estimated the loss resulting from the
shortening of the working day to 8 hours at 4,500,000
francs.

The employee of the navy yards knows how to
make profitable use of his leisure hours. In his Voy-
age Revolutionnaire, M. Griffuelhe declares that by
beginning work in the morning at 7 o'clock and quit-
ting at 5, he is "one of those employees who increase
their salaries by working a couple of hours more at
some employment in the city. A number work in
barber shops, others are carpenters, shoemakers, etc."
The work of these government employees thus con-
stitutes competition of a privileged class against the
workers employed by private industry.

Moreover, I have been told that the laborer in the
navy yard husbands his strength during the day in

310

LABOR

order to be able to make better use of his leisure
hours in the city.

5. The reinstatement of all railway employees af-
ter the recent railway strike has confirmed the con-
viction that they are the masters, and that it is sufficient
for them to threaten in order to obtain what they
want. Among other things, they have obtained a sys-
tem of regular promotion, which makes it easy for
them to dispense with all energy and zeal.

Moreover, as if in order to encourage further
claims, M. Cheron has taken care to make a compara-
tive table of the condition of the railway employees
before and after the purchase.

Western
Company (1908) Goveniment(i9i2)
Deficits from operation 25,822,000 fr. 83,673,000 fr.

The increase in operating costs is 72,304,000 francs.
The employees are responsible for 52,296,000 francs
of it. This increase was prophesied by the opponents
of the purchase.

We have just seen how, at the very time it was prov-
ing its inability to maintain order or to keep its em-
ployees at work in the arsenals of the Navy, the gov-
ernment must needs assume the responsibility of di-
recting more than 50,000 railway employees. More-
over, as a result of this increase in the number of gov-
ernment employees, the number of pensions has like-
wise increased. By lowering the age limit, the same
result has been effected. The same public utility or any
other undertaking must pay each employee not only his
salary but two or three pensions beside. Thus we are

3"

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

establishing a class of semi-independent gentlemen,
who live at the expense of the taxpayer, who often,
thanks to the pension which they enjoy, make danger-
ous and underbidding competitors of free labor.

In his preliminary work on the law of June 9,
1853, M. Stourm, councillor of state and government
commissioner, defined active service as "a day and
night service which exposes those engaged in it to
fatigues, diseases and dangers." ^ The law of Au-
gust 17, 1876, classes among those in "active service"
inspectors, superintendents, and teachers employed in
the primary normal schools, public school teachers, and
matrons of orphan asylums.

The employees connected with the prefecture of
the Seine were anxious to obtain the pension propor-
tioned to the time of service, provided for by Article
9 of the law of July 21, 1909, and given to em-
ployees of the railways, who "quit the service either
voluntarily or for any other cause, if they have been
affiliated with it more than 15 years." *

The Municipal Council, however, declined to be
so generous. It reduced by a half the length of service
pension of the employee who had been dismissed, and
it refused to the official who had left the service all
right to a pension.

Under the above conditions the police were granted
pensions for life, duly proportioned to their term of

^Moniteur, May 17, 1853.

' Yves Guyot, Les Chemins de Per et la Greve, page 149,
312

LABOR

service. The sum amounted to 1,300,000 francs in
191 1. In regard to active service the rating is 50 years
of age and 10 years of service. The figure was fixed
at 10 years in order to help out former non-commis-
sioned officers admitted to the pubHc service and who
hold four-fifths of the positions available.

Employees and workmen attached to the govern-
ment have but one thought, to hunt up excuses and
methods to "improve their situation." Among the
excuses is a very simple one, ready to hand for every
occasion, and having a certain degree of justice in it
— equal work, equal wages. Such or such an em-
ployee, in such and such a service, receives such and
such wages and such and such a pension; why not I?

Before the purchase of the Western railway the
opponents of the measure said to the government:
The employees and laborers on the lines already be-
longing to the state are receiving salaries and pensions
greater than those of most of your other employees,
and yet you would increase their number. The em-
ployees of the Customs, the Postoffice, the police and
other public departments will demand alliance. What
will your answer be ? ^

I note in the Journal OMciel, of July 27, a series
of questions put by Patureau-Mirand, one of the
deputies, to the minister of Finance, in which this idea
of alliance was constantly referred to. Here are two
of these questions:

M. Patureau Mirand asked the minister of Finance
whether he intended to incorporate in his budget a

' See Yves Guyot, Les Chemins de Per et la Grive, page 50.

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

plan for raising by a tenth the wages or salary of the
deceased, with a minimum of 250 francs at Paris, and
150 francs in the provinces, as is done in the case of
the employees of the state railways, who are receiving
a wage less than 4,000 francs; and an allowance for
burial expenses to customs officials and state factory
workers who die in active service — an allowance which
would amount to only 60 francs in the first case and
50 francs in the second.

"Answer — In the state factories the allowance of 60
francs (to subordinate officials) or 50 francs (to labor-
ers) is granted not only on the occasion of the death
of employees in active service, but also at the death of
employees who have left the service. In this latter re-
spect the employees of state manufacturing enterprises
are treated more generously than those of the state rail-
ways.

"Because of the excessive expense which would re-
sult from such a measure, it is apparently not possible
to increase the figure to the sum demanded. In any case,
the question would have to be made the subject of an
exhaustive investigation with respect to all the trading
undertakings of the state.

"Answer of the minister of Finance to question number
2,116 put by M. Patureau-Mirand, deputy, July 12, 1912.
M. Patureau-Mirand asked the minister of Finance
whether he intended to provide in his next budget for
a grant having a retroactive effect in favor of subordinate
officials and employees of government manufacturing
enterprises who have been granted medals of honor, a
special bounty of 100 francs, as is done in the case of
employees on the state railways on whom the medal of
honor has been conferred.

314

LABOR

"Answer — The question of the awarding of bounties
to government inspectors, and employees granted the
medal of honor for efficient work, is of interest not only
to the employees of the state manufacturing enterprises,
but also to those connected with the other government
trading undertakings. Therefore it cannot be decided ex-
cept after an exhaustive study tending to determine the
financial consequences which would result.

"In any event, there could be no question of granting
a bounty with a retroactive effect to all employees upon
whom the medal has been bestowed, because of the con-
siderable burden that such a measure would entail upon
the budget."

The minister of Finance confines himself to "trad-
ing undertakings." How about the employees of other
state activities, viz. : the Customs, Direct Taxation,
etc. ? Will they not have the right to ask : "Why are
we left out?"

Under the pressure of this feeling and the demands
of labor associations, which have made more or less
direct declarations of similar sentiments, a bill has
been passed entailing still further expenditures for
the improvement of the conditions of the employees of
the Postofifice, Telegraph and Telephone department;
the Bureau of Indirect Taxation, and the Customs of-
fice. These expenditures amount to 36,879,800 francs,
29,990,800 francs of which goes to the employees of
the Postal, Telegraph and Telephone department,
4,650,000 francs to the employees of the Bureau of
Indirect Taxes, and 2,239,000 francs to those of the
Custom House.

315

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

The official explanation of the underlying motives
inspiring this bill brings out the necessity of amalga-
mation for the sake of the officials and subordinates of
the Postoffice; it adds that the expenses just quoted
will have an immediate efifect upon the financial con-
dition of the indirect tax officials and of a part of
the employees of the Custom House. It was to take
effect October i, 1912. The budget of 19 13 will have
to provide 7,000,000 francs of the total sum. The
measure will be in full running order in 19 16.

During the course of the Teachers' Congress, at
Chambery, M. Guist'hau anounced that he would
not permit associations of teachers to become affili-
ated with the workers' exchange (Bourse du Tra-
vail), but, in lieu thereof, he promised to grant them
concessions amounting to 40,000,000 francs to be dis-
tributed over a period of five years.

We may be certain that, after the appearance of
the next budget, deputies will be demanding a short-
ening of the time for the distribution of the 77,000,-
000 francs.

7. The English trade unions complain that the mu-
nicipalities make better conditions with employees
than can be obtained from private enterprises. They
consider the municipalities as dangerous competitors;
for in Great Britain the members of the trade unions
threaten to abandon them in order to become members
of the Municipal Employees' Association. The Con-
gress of Trade Unions of Liverpool passed a resolu-
tion on this matter in 1906.

316

LABOR

Although the various public undertakings of Man-
chester have passed a resolution urging that the rec-
ommendations of municipal councillors be ignored,
it is scarcely probable that the resolution has produced
any eflFect. According to the investigation of The
National Civic Federation of the United States all the
municipal workers of Glasgow are recommended by
municipal councillors.^ Moreover, according to the
report of the same investigators, throughout all Great
Britain the municipal departments negotiate with the
representatives of employees. As these latter are at
one and the same time employees and electors, they
thus become the masters of those whom they ought to
obey; and, the more their number grows, the more
concessions they exact at the expense of their fellow-
citizens.

At West Ham the Municipal Council delayed the
opening of its session in order that municipal em-
ployees, sewer diggers, street sweepers and teamsters,
could attend and make known their opinions.

The National Union of Gas Workers and General
Laborers, organized in 1889, represents the trade
unions of the unskilled, that is to say, the manual
laborers. It has had at its head such leaders as John
Burns, Tom Mann, Ben Tillett, and Will Thorne. In
1890 it organized a strike at Manchester, and was suc-
cessful; with the South Metropolitan Company it
failed. It numbers 30,000 members, distributed
among the various municipal gas undertakings, but its

"^ Municipal and Private Operation of Public Utilties, Na-
tiojiaj Civip Federation, 1907.

3^7

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

membership also extends into various private enter-
prises which manufacture other products than gas.
Article lo of its platform is worded as follows :

"To insure the sending of members of urban district
councils as representatives on boards of guardians, in
municipal bodies and in Parliament only on condition
that they be partisans of public ownership of the means
of production, distribution and exchange."

In 1892 the Union's general secretary, Will Thorne,
was elected member of Parliament for West Ham.
It has also had other electoral successes.

In 1905 Keir Hardie formed the Municipal Em-
ployees' Association. Its defenders say that it con-
tains 2,000,000 members, a membership which would
appear to be greatly exaggerated. But there are asso-
ciated local unions.

8. The state does not pay higher salaries than pri-
vate industry, except when it is compelled to do so
through the weakness of state officials. In Prussia,
where the electoral influence of the workers is feeble,
the maximum salaries of the fiscal mines of the Saar
district were, in 1908, much lower than those paid by
private industry in the valleys of the Ruhr and of the
Wurm; whereas the cost of living is practically the
same in all these districts. According to a memorial
addressed by the Association of Christian Miners to
the Prussian ministry of Commerce and Industry, on
the 22nd of October, the annual average of salaries
has been decreased by reason of unemployment and
reduction of wages.

318

LABOR

Salaries in the Saar
District

Difference in Payor
OF La Ruhr

Difference in
Favor of Wurm

Per
Year

Per
Workday

Per
Year

Per
Workday

Per
Year

Per
Workday

Marks

Marks

Marks

Marks

Marks

Marks

1908
1909

I9I0
191 1

1,182
1,136
1,122

570

4.04
3.96
3.97
4.02

313
214
260
136

0.78
O.S9
O.S7
0.63

227
208
257
114

0.53
0.49
0.52

0-59

The facts thus brought out were not denied in the
Chamber of Deputies, but the minister answered that
it was impossible to increase profits and salaries at the
same time.

The miners also complained that salaries continued
to decrease in face of the higher cost of food. More-
over, they brought up the interesting comparison
that, in 1908, an increase of salary had been granted
to the mine officials, while the miners were voted a
substantial decrease.

9. As causes are practically identical in all countries,
so effects are usually identical. Characteristic of this
universality of cause and effect is the absence of pro-
ductive energy in the work of the employees and
laborers of national municipal undertakings.^ From
1893 to 1902 the department of Public Works carried
on a number of undertakings for the London County
Council. Seventy-nine thousand pounds sterling was
demanded over and above the original appropriation.

Two years afterward it was declared that these con-
structions have cost £40,000 more than would have
been the case if they had been confided to a private

' See Raymond Boverat, Le Socialisme en Angleterre.

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

company. The differences in the estimates submitted
varied from ii to 40 per cent.^

Lord Avebury says: "A municipal workman lays
300 bricks during his day's work, where the American
laborer will lay from 2,000 to 2,700."

An alderman of West Ham calls the system of con-
struction under municipal direction: "The monopo-
lizing of laziness."

A municipal councillor of the same municipality
answered : "I care little about the taxes or about
those who pay them. What I am interested in are
my electors." ^

Benjamin F. Welton, engineer in charge of the
Bureau of Efficiency in New York, says of the pro-
ductive energy of municipal workers : *

"Except to the few who have made a study of the sub-
ject, the extent of municipal inefficiency is almost unbe-
lievable. Lacking the measure of efficiency in private
enterprise, there can be no conception of the actual inef-
ficiency of public service."

During the last five years Mr. Welton has been
making investigations in several of the boroughs of
New York City for the Commissioners of Accounts,
and in Chicago for the Merriam Commission. At first
the observations were secret; afterward a duplicate
series was conducted openly. By comparing the earlier

" The Accountant, July 31, 1897.
' The Times, September 16, igo2.

'Efficiency in City Government, Annals of the American
Academy of Political and Social Science, May, 1912, page 103.

320

LABOR

observations, which would obviously indicate normal
inefficiency, with those made later, it was ascertained
that the loss of efficiency varies from 40 to 70 per cent.
The loss of efficiency in the work done for a great
municipality may therefore be estimated at about 50
per cent.

The City of New York pays $17,000,000 to its mu-
nicipal workers. The inefficiency in the work, there-
fore, represents a loss of $8,500,000. Mr. Welton
gives an excellent explanation of the causes of this
inefficiency. They are the same everywhere. Meas-
ures are taken to guarantee control of expenditures
and prevent favoritism, but without accomplishing
anything in the end. From the point of view of em-
ployment, lists of preferred candidates play a deplora-
ble role. Men have been employed in moments of
pressure and afterward been discharged. These are
naturally the least capable; but they are placed upon
preferred lists and thus they ultimately come to form
the real personnel.

No employee can be forced to render any service
not previously contracted for. This is one way, of
course, of combating favoritism, but a very incon-
venient one. Moreover, the City of New York must
accept as employees veteran soldiers and firemen.

The fiscal authorities demand economy, but they
understand by the term not efficiency of service, but
rather the conservation of funds. For some years in
a certain number of cities — among others New YorL
and Chicago — a form of control has been in oper^
tion known as the "segregated budget." Each item,
whether of labor, of material, or of equipment, must

321

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

be charged to its particular fund. The total for
each is fixed by the fiscal authorities, and no modifica-
tion of it can be made without the authorization of the
body which originally established the amounts. But
action is paralyzed by too much control. This method
of regulation fixes in advance the number of em-
ployees, the rate of their salaries by the day, and
makes any increase in the number of employees, or
any modification of their salaries, impossible without
the censorship of the highest city officials. As a result,
inefficiency is not penalized, nor is efficiency rewarded.

The municipality generally pays from 20 to 50 per
cent, more for common labor than does the contractor.
The work hours are shorter in consequence of measures
passed either by the state or by the municipality for
political ends.

Salaries are paid regularly, but without considera-
tion for special skill or energy, thus inviting ineffi-
ciency. A capable workman or employee will natur-
ally avoid a system in which capacity counts for little
while political intervention is all powerful.

"When an employee," says Benjamin F. Welton, "can
do what he likes and snap his fingers in the face of his
superior, if he is reprimanded, the efficiency of the entire
force to which he belongs is gone. It is not uncommon
for a foreman to suspend a laborer, request his discharge,
ignd then be instructed to reinstate him and "leave him
■lone." After such a performance how can it be expected
that the foreman can compel the obedience of the re-
mainder of his force?"

322

LABOft

The greatest amount of lost effort comes from wast-
ing time.

There has been httle attempt made to compare mu-
nicipal with private labor productivity. Furthermore,
municipal records are not to be depended upon. Fore-
men will exaggerate the favorable results, and, what
is worse, conceal the losses.

The system of reports dealing with the financial
needs of an enterprise are usually made out without
consideration of the amount of work turned out. In
fact, the reports do not even accurately reflect the con-
ditions which they are expected to make clear. The
connection between results and expenditure is almost
never determined.

Among the suggested remedies for this state of af-
fairs are to be found : An effective method of engag-
ing employees; introduction of strict methods of
discipline; great latitude in the discretionary power
of the department concerned; permission to punish
negligence and laziness and to reward zeal. But all
these measures are incapable of fulfillment, because
they prxjvoke accusations of favoritism and probably
would engender it.

Mr. Welton shows how economy can be brought
about in an undertaking. In 1910 the Commissioner
of Accounts, at the invitation of the Borough Presi-
dent of Manhattan, undertook the reorganization of a
part of the maintenance force of the Bureau of Sewers.
This service included 24 cleaners and 38 horses and
carts, divided into 12 gangs of workmen, each with its
own foreman. The cost was about $4 per cubic yard.

323

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

In a few months the number of gangs and foremen
was reduced from 12 to 4, the cleaners from 24 to 16,
the horses and carts from 38 to 14. Production was
increased 100 per cent. ; wages, 15 per cent. ; the aver-
age cost per cubic yard was reduced from $4 to $i.45-
The net result was an increase in efficiency of 275 per
cent.

But can reforms giving similar results be made gen-
eral ? Many such cases do not destroy the viciousness
inherent in the general system.

10. Emmanuel Brousse once declared that the
French government did not adopt the system of over-
time for extra work because such work was done
during the ordinary working hours of the depart-
ment.

One department head answered : "If I did not have
premiums at my disposal, the work could not be done
at all. The majority of the employees never come
to the bureau, and those who do, being obliged to do
the work of the others, must be indemnified for the
extra work they do."

I know the danger of such generalizations. There
are, in all the departments, men who work, but, as
Bugeaud said, these are always the ones who commit
suicide. Others, on the contrary, reHgiously practice
the well-known commandment: "Never do to-day
what another can do to-morrow."

And, not only is the work to be gotten out of a
national or municipal employee or laborer below par,
he has also all sorts of resources for reducing it to a

324

LABOR

still lower grade. Among others we find the disease
which has been called laborophobia.

Among the municipal employees of the City of
Paris the number of sick days has increased as fol-
lows:^ From 1896, when an account of these ab-
sences was begun, to 1908, according to statistics of
the Bureau of Public Highways, the number of hours
of work has decreased from 13,458,817 hours, to
12,992,718 hours, or a difference of 466,099 hours.
The number of hours of absence on account of illness
has risen from 556,440 to 1,056,464, or a difference
of 500,024.

"This doubling of the number of sick days within a
period of a few years ; this characteristic decrease in the
productive energy of the| worker — of this worker who
each day is better paid and less worked and provided with
a greater number of rest days — testifies to a deteriora-
tion in the ideal of loyal service which the Council can-
not afford to overlook."

I must bear witness that it is devoting itself to the
question, and that the number of sick days is decreas-
ing. From 8.27 per cent., in 1907, it has been lowered
to 6.44 per cent., in 191 1.

The same professional malady has raged with in-
tensity among the employees of the government rail-
ways, according to the report of P. Baudin on the sup-
plementary credits of the government railways for
the month of July, 1912. Here is the effect of the
measure granting full pay to employees reported ill:
In 1909 the number of sick days was 474,000; in

' The report of M. Dausset on the budget of the city of Paris,
1912.

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

191 1 it had risen to 656,000, or an increase of 182,-
000 sick days in two years. Out of 67,967 employees
36,816, or 54 per cent., were rendered incapable of
work on account of illness. This proportion of in-
capacitated men is disquieting only from the point of
view of the finances of the railway system and its
defective administration.

Again, while only a part of the employees were en-
joying these hours of leisure, it was, of course,
necessary to increase the efifective force by 7,440
units, representing 15,539,900 francs of added ex-
pense.

II. Even in a small country like Switzerland, justly
proud of its lofty public morale, the same phenomena
occur.

In Switzerland the Federal Council modified plans
in favor of the Federal railway employees, which had
been carefully worked out by the general manage-
ment, in order to make these same employees addi-
tional concessions; and these concessions have been
still further increased by the Chambers. Salaries have
been raised and all sorts of advantages multiplied.
Hours of labor have been decreased, and all without
any useful result.^

The day on which the French government bought
the Western railway augured an inevitable strike on
the railroad. It was well known that the government
had been unable to maintain discipline among the male

* Th. Favarger, Situation des Chemins de Per Federaux en
Suisse, Journal des £conomistes, December, 1910, Rapport de la
Commission du Conseil National, 1909.

326

LABOR

and female employees in the tobacco factories. It
had come to terms with the employees of the match
factories only by the help of one argument: "Strike
if you like; there is more profit for us in buying
matches abroad than in manufacturing them." It
was known also that anarchy was rampant among
the employees in the navy yards. Nevertheless, and
with such experiences behind it, the government dared
to assume the management of 60,000 new employees.

To bring pressure to bear upon the minister, the
general manager and the directors of the various
branches of the railway service, the railway employees
would now have their increased number, their quality
of electors, their syndicalist organization and their
own deputies, anxious to obtain office by the help
of the labor vote. How could the general mana-
ger and the directors of the different branches of the
service be expected to resist this pressure? And, if
they should so resist, would not the minister be the
first to say: "Don't get into a row" ?

The employees of the Western railway cherished
the most extraordinary delusions concerning what
they were going to get out of its seizure by the state.
One department head remarked to one of the dispos-
sessed private owners : "I have had only the pleasant-
est relations with you; nevertheless, I cannot hide
from you the fact that I am enchanted with this pur-
chase, because my power of appointment will be there-
by doubled."

If one department head deluded himself in such
fashion it may be easily judged what went on in the
minds of his subordinates. And what bitter disap-

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

pointments have resulted! Why does not the state
which is so rich give everything that is demanded of
it? The government railway was the starting point
of the strike of 1910.

As an illustration of this attitude of the whole body
of employees take the following series of incidents :
M. Renault, an employee attached to the main office
of the railway, published a manual of sabotage, in
which the following declaration appears :

"We must choose comrades among the professional
workmen who, on account of their familiarity with the
work, can, by a single blow, put out of commission for
a number of days the equipment indispensable to the
operation of the service as well as to the running of the
trains."

The minister called together a committee of inves-
tigation into the conduct of Renault, composed of
ten members representing the management, and ten
members elected by the employees and laborers, under
the presidency of M. Vienot, assistant manager of
the company. The ten members representing the em-
ployees drew up a resolution declaring that M. Re-
nault had done no more than express their opinion.

They rejected the proposal to strike the name of
M. Renault ofif the list of employees, while the ten
members representing the directorate voted in favor.
The vote of the chairman decided the question. If not
a single employee had taken his seat the result would
have been the same.-'

^Yves Guyot, Les Chemins de Per et la Grdve, 191 1.
328

LABOR

The chief weapon of the employees of government
undertakings is the fear which they inspire in their
immediate superiors of being called to account by depu-
ties and senators, together with the influence of these
same deputies and senators upon their colleagues and
upon the ministers. Nor is the use of this weapon
concealed.

A congress of railway men was held in Paris on
the 2nd and 3rd of April, 19 12, presided over by M.
Barbier, of the government railway system. During
the course of the discussion another employee of the
government railways, M. Leguen, remarked:

"If all public services were properly organized we
should be forced to form a federation of all the em-
ployees of the government, when we would become an
immense force.

"Our syndicalist action upon the state railroad has
already been recognized. Nothing is done without noti-
fying the section committee concerned. We have won a
footing in the house. Do your companies allow you as
much ? Just this foothold alone would suffice."

Nationalization of all the railways was voted al-
most unanimously and upon the spot. It was decided
that action should be begun with the Orleans road.
Moreover, the congress determined to do its utmost
in order that the organization, not only of the present
state system, but also of systems to be acquired in the
future, should insure to the employees themselves a
share in the administration and management to which
they contend they have a right.

329

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

Laborophobia has been raging among the employees
of the government railways, and is becoming still
more aggravated: 474,000 sick days in 1909; 656,-
000 in 191 1 ; 36,816 employees out of 67,967, or 54
per cent., obtained leaves of absence with full salary
under the same pretext.

The employees of the government railways do not
show the smallest gratitude for the concessions made
them. Before the Congress of the National Associa-
tion of Railways M. Berthelot declared that such con-
cessions had been obtained "through syndicalist action
and the strike." ^

Under the system of automatic promotion, the en-
gineer found guilty of the wreck of Courville, a man
who had been repeatedly punished for intoxication,
has been promoted to a higher position. Again, the
fact that a man like M. Goude, now deputy, was re-
tained in the navy yard at Brest, is another clear
proof of the state of anarchy which exists among the
employees of the Navy. Still another encouraging
featuiL in connection with our naval employees is
the fact that these workmen, who live only for and
by preparations for war, are peace at any price men.
In 19 12, during the discussion regarding the naval
program, M. Goude demanded that the number of
laborers in the navy arsenals be increased; that the
number so increased should remain fixed, and that
armaments be diminished.

The following story was told me a few years ago
by a naval officer of high rank :

^ Le Temps, April 4, 1912.

330

LABOR

"A certain laborer employed in the navy yard at
Brest presented himself with all formality before his
commanding officer. He gave the correct military salute,
touching his cap with the back of his hand with his open
palm toward the admiral. Upon the palm, however, was
written in large letters a most flagrant personal insult
which the admiral pretended not to see."

From the moment that the salary question ceases to
be regulated by net cost and becomes dependent solely
upon the amount of pressure to be exerted upon repre-
sentatives entrusted with the distribution of the public
resources, salaries will have no other limit than the
force of resistance of these same representatives, or
the exhaustion of the budget.

In 1912 the city of Paris was asked for an increase
of the so-called residence subsidy — an additional
amount of money beside the regular salary to partially
cover the cost of rent — granted to the teachers of the
city. Such an appropriation would involve a general
increase of 200 francs for each member of the entire
teaching force. Several other concessions were also
demanded, which would require a modification of
the law of July 19, 1889, and of the decree of April
20, 1892.^ Let me quote the threatening terms in
which one of these teachers — a certain M. Escudie —
addressed the Municipal Council in the Bulletin de
I' Association des Anciens £ldves de l'£cole Normale
de la Seine:

"In the four months allowed the Prefect to answer
our petition it is incumbent upon the department of

' Report of M. Rebullard, Municipal Council of Paris, 1912,
No. 7.

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

Education and the Municipal Council to prove their good
will toward us by adopting a comprehensive plan of
increase. If our very modest demands are admitted, in
a word, if every instructor is given the immediate cer-
tainty of seeing his situation improved before the age
of 55 years, this campaign will utterly cease. But at
the present time, and I insist upon this, the Department
and the Municipal Council alone have the power to put a
final stop to further action on our part."

In 1905, following a disagreement with the Federa-
tion of Friends (Federation des Amicales), whose
demands they judged too moderate, the Teachers'
Union was organized. It is certain that in so doing
no reference was made to either the letter or the
spirit of the law of 1884. Nevertheless, on Novem-
ber 7, 1905, the Chamber of Deputies decided not to
prosecute the existing union, declaring that all that was
necessary was to forbid the formation of new unions
until a vote had been taken on the bill concerning
the status of government employees. The new union
paid no attention to anything except the first part of
this decision, and, on the 7th of November, it
launched a manifesto declaring that its members wished
to become associated with the Workmen's Exchange
and to belong to the General Labor Confederation.
The manifesto concluded with these words:

"The new union must be ready to furnish a basis for
future autonomous organizations to which the govern-
ment will commit the duty of managing, under its and
their reciprocal regulation, a socialized public service,"

333

LABOR

At a congress held at Chambery, in the month of
August, 19 1 2, 50 unions were represented, at which
the principle of the amalgamation of teachers and la-
borers was endorsed and the following sentiment de-
clared :

"Our relations with the government as an employer
are no different from those of any employee toward
his employer, and we ought to have, as against our em-
ployer, the same rights that any employee has as against
his. Such employees have their unions to protect them;
therefore we ought also to have ours."

From the standpoint of salary a "syndicalist rate"
ought to be established, declared one delegate ; and the
congress so voted. The suppression of any method
of promotion except that founded on length of service
was also voted, a premium being thus put on indiffer-
ence and inefficiency.

Finally the Congress resolved upon "an effective
representation of the Teachers' Union at the next con-
gress of the General Labor Confederation, at Havre,
in order to emphasize more and more its attachment
to the organized working classes," ^ and adjourned
after singing the "Internationale." ^

Many of the members of this Congress were district
councillors, and hence representatives of the majority
of their colleagues, thus showing how far they were
willing to go in taking advantage of the good nature
and weakness of ministers and members of Parlia-
ment.

" Le Temps, August 19, 1912.
'The Socialist hymn.

333

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

Unfortunately for the teachers they went further
than the Poincare ministry was willing to follow. On
the reassembling of the ministry, on the 22nd of Au-
gust it was decided to dissolve the Teachers' Union.
The representatives of the union have declared, how-
ever, that they will resist dissolution.

M. Guist'hau alone has submitted his case to the
courts, which are thus required to decide concerning
the legality of teachers' associations. While await-
ing the decision the representatives of the unions de-
fied the minister, and their general secretary, M. Chal-
opin, went to preside over the meetings of the con-
gress of the General Labor Confederation held at
Havre.

Up to the present, June, 1913, nothing serious has
yet been done. The threat alone has been sufficient to
make the school teachers keep the peace to a certain
extent.

Many teachers destined to form the manners of the
new generation stand in great need of reforming
their own. But is it upon them that the responsi-
bility for such acts as those just described above should
fall? Should it not rather fall upon the parrot-like
training of the normal schools, which teaches pupils
to recite socialist or anarchist formulas as they recite
phrases from their text-books?

The Congress of Railway Mechanics has put on
record its sympathy with the teachers by voting a
resolution "protesting against this show of govern-
mental despotism." Afterward its delegates presented
themselves before the minister of Public Works, who

334

LABOR

was weak enough to receive them, according to the
following note, published in Le Temps of August 24:

"The delegation put numerous questions to the min-
ister, especially in regard to the reinstatement of em-
ployees dismissed during the strike of 1910, and concern-
ing their eventual reincorporation in the state railway
system. The members insisted that the pensions, allow-
ances and other advantages previously granted by the
railway companies to these dismissed employees be re-
computed in conformity with the provisions of the laws
of 1909 and 1911.

"The minister requested the delegation to formulate
each of their claims in writing, promising to examine
them with the greatest care."

This is indeed admirable ! The Railway Department
had been weak enough to give the dismissed employees
pensions to which they had no right; but that was
not sufficient. They wanted more; and, when their
pensions are regulated to suit them, they will be rein-
stated into the government railway system, where they
can organize strikes at their ease, while saying to their
comrades : "You see, we have everything to gain,
and nothing to lose, by a strike !"

Toward the beginning of 19 12, a school teacher,
M. Leger, on account of disciplinary punishment
meted out to a teacher, threatened his immediate su-
perior.

A sub-agent in the Postoffice, M. Bouderis, brought
before a council of discipline to be dismissed for sign-
ing a placard addressed to "the Public," appealed for

335

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

protection to the entire body of government employees.
The Bataille Syndicaliste claimed that he could not be
prosecuted because he had acted as secretary of a
union.

A rural guard, named Carre, professed anti-mili-
tarism. If his actions were in accordance with his
talk he would refuse all military duty. Nevertheless
the syndicalists exclaim: "Don't interfere with the
employees of the state railroads, who are teaching the
theory of sabotage."

Under the name of Friendly Association (Associa-
tion Amicale) the policemen of Paris have organized
a mutual benefit society, the officers of which are the
higher salaried employees of the Police department —
or even officials not belonging to that organization.
One of its presidents was M. Vel Durand, former
prefect of the department of the North, and afterward
councillor of state. Every year the prefect comes to
preside over the annual meeting. He frequently brings
other ministers with him.

Under the circumstances it was easy to foresee what
has since actually happened. A movement was organ-
ized in the association to transform it into an active
"syndicat." In December, 191 1, they presented their
claim : Suppression of peace officers, suppression of
the ordinances.

The ministers, however, realized that the prefect of
police could hardly take orders from a "syndicat" of
policemen. Whereupon the "syndicat" appealed to the
Executive Committee of the Radical and Radical So-

336

Labor

cialist party, whose vice-president accompanied by his
colleagues went and presided over a meeting of police-
men organized against the government at a time when
the minister in power was representing that same Radi-
cal and Radical Socialist party.

At the National Printing Office an attempt was
made to form a limited joint stock company, with
M. Boudet as director. As it had been published
broadcast that he belonged to the General Labor Con-
federation, he hastened to correct the mistake. He
was affiliated with the twenty- first section of the
Livre,* a branch of the Federation of the Livre, which
was represented in the General Labor Confederation.

Now the General Labor Confederation has for its
creed: Direct action. Consequently the Federation
of the Livre must endorse it.

The subordinate officials of the Postal, Telegraph,
and Telephone department have organized many
strikes. They have dragged their chiefs through the
mud ; they have launched insults against the ministers
and Parliament. There have been practically no re-
taliations for this course of action on the part of the
government, and, if there have been any victims, they
have not been hurt much.

Indeed, it is astounding to observe the utter lack of
conscience with which public employees, who have
begged to enter the government service, knowing the
conditions which they were accepting, and who have

' An association of employees engaged in the preparation of
the Register of the National Debt.

337

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

received so many advantages upon which they had no
right to count, have thought themselves justified in
interrupting, this service at their pleasure.^

Such or such an employee is punished because he
has hurled an insult or a threat against his chiefs.
He appeals on the spot to "liberty of opinion." If he
considers outrage and denunciation opinions, he only
proves the crying need of reform in our elementary
instruction. But among those who confuse these terms
are teachers themselves.

Governments themselves persist in destroying all
spirit of discipline among government employees.
In Austria, in 191 1, a number of deputies proposed an
increase of 38,000,000 crowns for the railroad em-
ployees. The minister, despite his earnest desire to
satisfy them, could agree to only 21,000,000 crowns.

Then what happened ? The discontented employees,
bitterly resenting this grant of only 21,000,000 out of
the expected 38,000,000 crowns, and well aware that
there are more generous men in power, brought all
possible pressure to bear. Meantime they made threats
against those deputies who were not disposed to keep
on giving them more.

12. Despite facts clearly set forth by Gustave
Schelle, who, as honorary director of the ministry of
Public Works, is thoroughly familiar with public ac-
counting, the partisans of nationalization and munici-
palization still continue to talk of "industrial budgets."
Marcel Sembat, who reported on the postal, tele-
' Yves Guyot, Les Chemins de Per et la Greve, 1911.
338

LABOR

graph and telephone budget, declared that everything
will be set financially right on the day when this bud-
get becomes an industrial budget. Employees of
the department have declared on divers occasions
that the budget is their concern solely and that they
have a right to its profits. But how about the losses ?
If there is a loss will these employees feel themselves
responsible for that also ?

Numa Droz, in a pamphet combating the purchase
of the Swiss railroads, says : "The employees will
become accustomed to considering the railways as
belonging before all else to themselves, as a field cul-
tivated by them, and from which the profits should
revert to them in the first instance."

In 1909, at the Federal Congress of Mechanics and
Firemen, one delegate cried : "The government as
an employer is incapable of managing a railway sys-
tem." This opinion, nourished with great care by
Socialists like M. Sembat, and by the partisans of
public operation generally, is proclaimed with the great-
est naivete : Any undertaking is rightfully the property
of its employees. The management should be in their
hands. They will operate it for their own benefit.

In their manifestos and in their platforms Social-
ists are accustomed to refer to ministers as incompe-
tents who "have never done a hard day's work with
their hands in their lives." In other words, a director
of Government Railways, for example, ought to be an
experienced locomotive engineer, and a minister of
Public Works at the very least a switchman, in order
to justify their right to their positions.

339

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

By a decree of June 26, 191 1, the National Printing
Office was reorganized. The workmen, however, were
dissatisfied. They had worked out an organization of
their own. They wanted a labor management, but with
"due respect for the existing autonomy in the organi-
zation of each public department."

During a meeting at the Labor Exchange the em-
ployees of the National Printing Office adopted the
following resolution, which deserves to be quoted, be-
cause it shows their demands in all their crudity:

"In consideration of the fact that for many years the
management has not been able to operate the National
Printing Press in an industrially satisfactory manner;
that the attacks on our establishment before ParHa-
ment and in the press are justified by the disorganiza-
tion of the various departments, and by the general
confusion, with fatal results, due to the incompetence of
the heads; that a serious prejudice has been aroused
against the government among the employees and tax-
payers by the discredit passed upon the establishment;
and that, finally, the enormous amount of general ex-
penditures is the sole explanation of the increase of net
cost, all these facts have persuaded us to substitute for
the present administrative regime an organized labor
administration ; to replace inefficient and disinterested
officials by responsible and interested producers ; to
create a central organization coordinate throughout its
parts; to give to the undertaking a management com-
posed entirely of workers; to bring to the attention of
the minister of Finance and other public authorities the
said plan of administration ; and to take such steps as
are needed to bring about its adoption."

340

LABOR

Here we have the great syndicalist program: the
employees, officials, and subordinate officials of the
Postal, Telegraph and Telephone department as pro-
prietors of the said department, and the laborers of the
navy yards, with M. Goude as their representative, as
proprietors of the arsenals. This program, attractive
though it be for those who are to carry it out, is
scarcely of a nature to increase the prestige of gov-
ernment and municipal operation.^

Nor does it imply direct public operation. It is
indirect public operation, because neither government
nor municipality will manage the undertakings of the
taxpayers, for whom such enterprises were created.
The employees and laborers are going to operate them
for their own benefit.

As a matter of fact, the whole question is one of
putting into practice Article ii of the program of the
Congress at Havre, in 1880, drawn up by Karl Marx,
and presented by Jules Guesde.^ It is thus worded :

"The annulling of all contracts alienating public prop-
erty (banks, railways, mines, etc.), the operation of all
government workshops to be confided to the men who
work in them."

13. From a distance it would appear that such a
regime might work admirably ; to the omnipotent direc-
tors, control; to the heads of departments, their pre-
scribed duties; to the subordinate officials, the head
clerks, the executive force, each his special task, and
so the wheels would go smoothly round. Ministers,

'■ See Appendix "B."

' See the text in Sophismes Socialistes et Fails &conomique,
by Yves Guyot, Paris, Librarie F. Alcan.

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

even governments, may change ; the active management
remains. There is some truth in this conception, and
the facts have proved it.

Only all management must be carried on by human
beings, and human beings have various personal idio-
syncrasies. They are not all of the same character,
and, in all departments, there are sympathies and an-
tipathies. There are managers who know how to get
work done, and others who do not. There is routine
and negligence. On the one hand, we have fear, hate,
and mistrust of government and public; on the other,
dread of responsibility — "don't raise a row." Finally,
there is "the good of the service," and from this point
of view the undertaking becomes an end in itself.

The partisans of government ownership of the rail-
ways are always ready with this postulate : "Why do
you think that railways belonging to the government
will not be as well managed as private lines, when the
same engineers who have managed the one are to
manage the other?"

But, as M. Duval-Arnold ^ has well said :

"The same engineer is a very different individual ac-
cording to whether he is accountable to a private em-
ployer or whether he is employed by the city of Paris ;
in this latter case his work is hampered by the constant
effort he must make to keep out of trouble with the Pre-
fect, with the Council, and, above all, with the General
Labor Confederation to whom the employees under his
orders are subservient."

^ Societe d'ficonomie Politique, Journal des £conomistes, De-
cember, 1912.

342

LABOR

I have heard ministers of Public Works, on the
next day after accidents, say, in response to com-
plaints : "Yes, things are going badly. The man-
agement of the government railways is deplorable.
But I am going to change all that!" Then, without
warning the general manager of the Railways, this
minister proceeds to dismiss an important official of
the government railways, to whom the government
straightway awards a good conduct medal. Under
such conditions what becomes of the authority of the
manager? What respect can he inspire in his em-
ployees? Such ministers, instead of bringing order
into the government railway service, are playing fast
and loose with anarchy.

14. Every government or municipal enterprise is
exposed to political outbidding of one politician by
another.

Authority slips from the hands of the management
in charge to the deputies and municipal councillors, to
whom such managers feel themselves responsible, and
who are nothing less than proxies of government
employees in their attacks on the public interest.

Government employees become electoral factors, so
much the more important in proportion to the in-
crease of government and municipal activities. They
become the actual masters of those to whom in theory
they are subservient. This danger has been strongly
felt in the government which has had the most com-
plete experience with Socialism — New Zealand.

Article 22 of the civil service regulation reads:

343

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

"In order that employees of every grade can be
counted upon to render loyal and efficient service to the
government, it is necessary, and, moreover, it is ex-
pressly enjoined upon them, to take no part in politics
other than through their votes at elections. Each viola-
tion of this article will be met by a penalty proportioned
to the attendant circumstances of the act."

The railway regulations of 1907 confirm this order :

"Outside of their vote employees must take no ac-
tive part in politics."

A workman in the railway shops, J. A. McCal-
lough, during a meeting of the Independent Political
Labor League, in September, 1907, introduced a reso-
lution against the ministry of War, and was dismissed.
He alleged as his excuse that he had been occupying
himself with politics for a long time without anything
having been said about it. The Chamber almost
unanimously upheld the government, while regretting
its previous tolerance. The following comment ap-
peared in the Evening Post: "If the state does not
govern the employees, the employees will govern the
state." As a matter of fact, the political power of
these servants of the government is astonishingly great.

In New Zealand 54,000 persons are directly de-
pendent upon the state ; with their families they form
a group of at least 130,000 people. Those who de-
pend more or less indirectly upon it may be estimated
at a still higher figure. Altogether such individuals
represent more than a quarter of the entire population.

Delegates to the British Trade Unions Congress
were received by Mr. Asquith, February 15, 1912. Mr.

344

LABOR

Millard, representing the employees of the Postoffice,
demanded "that they be authorized to exercise all the
rights of citizens, and especially to be allowed to
speak for or against any candidate in the legislative
elections."

Mr. Asquith observed that it was hard to see why
postal employees should be granted a privilege refused
to all other government employees. An employee of
the Postoffice might vote for his chosen candidate, but
he ought not to be a member of an electoral commit-
tee.

Mr. Millard answered that it was precisely this
limitation that he and his constituents wished to
overcome. Mr. Asquith asked whom he was repre-
senting.

"Postal employees of the lower grades," was the
reply.

Mr. Asquith — "You are asking, then, that Postoffice
employees, who do not even pay the income tax,
shall have a preliminary voice in the elections ?"

In Great Britain the suppression of the vote of
municipal employees has been demanded a number of
times. In the Municipal Trading Report of 1900 I find
the following declaration of Sir Thomas Hughes,
twice mayor of Liverpool:

"The day on which a man becomes an employee of a
municipal corporation he ought to have no further voice
in the choice of his superiors."

Mr. O. Smith, town clerk of Birmingham, has ex-
pressed, although with some caution, the same senti-
ments. Alderman Souther, of Manchester, and the

345

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

Lord Mayor of Glasgow, Mr. S. Chisholm, are also
of this opinion.

The suppression of the political and electoral rights
of all the employees of states and municipaliiies is an
indispensable consequence of the dcz'cloptnent of pub-
lic operation. Are its partisans prepared to accept such
a result?

15. Rules for the model government employer:

1. The state should be a model employer, and its
generosity should not be limited by any consideration
for the taxpayers. Private property should be confis-
cated for the sake of collective ownership of all the
instruments of production, distribution and exchange.

2. To this end the state ought to employ twenty
employees where private industry would use but ten.

3. It ought to pay 100 francs of salary, where pri-
vate industry would pay 50, and it ought to supple-
ment the actual salary by full pay for rest time and
vacations, and grant numerous other advantages in
the way of money and privileges as well, without
counting free lodging.

4. It ought to insure leisure time for workers by
always accepting shorter hours of work than private
industry is prepared to do.

5. It should recognize one's right to. be lazy, and,
therefore, it ought to give full pay to all those af-
flicted with that sacred malady, laborophobia.

6. Employees should be irremovable, but they should
have the right to strike.

7. The management of undertakings belongs only

346

LABOR

to the competent, or, in other words, the employees
of the service.

8. The service not being the property of the public,
who are paying for it, but of the employees, who
ought to render it, its profits belong to them, and
ought to be divided among them.

9. The employees, being the rightful proprietors of
the service, ought to be bound by no other rule than
to make use of it for their own best interests.

10. The model government employer, confiding
state undertakings and their operation to employees
more or less federated, should not only provide an ex-
ample of abdication for private employers, but it
should force them to it by the above rules, which are
essential conditions of direct public ownership.

347

CHAPTER VI

THE CONSUMER

The Consumer of an Extortionate Monopoly Is Without Re-
dress. — The Sole Remedy; To Go Without. — Water in
Paris.— Short Allowance. — Government Matches. — To-
bacco. — Deceptions in Quantity and Quality. — The Con-
sumer a Dependent, Not a Contracting Party. — The
Postoffice. — The Telephone. — The Privilege of Pa-
tience and Good Temper Left to Telephone Sub-
scribers. — Subscription Rates in France. — The Tele-
phone in Great Britain. — The Prussian Government
Railway Lines Form a Trust. — Private and Municipal
/Employment Bureaus.

Under a regime of economic liberty the manufac-
turer and the merchant need the consumer more than
the consumer needs them. Under a monopolistic
regime the consumer has but one duty — to submit.
He has but one other recourse — to go without.

Now, if there is any service which ought to be pro-
vided on a large scale it is water. Yet nearly every-
where the demand is greater than the supply. Paris
has always lagged behind. There has scarcely been a
summer when, under one pretext or another, there has
not been an interruption in the water service.

We have become used to being told that our faucets
will be shut off during the night, and that, if we have
not taken proper precautions, we run the risk of a

348

THE CONSUMER

temporary water famine. If a fire should break out
we would not have even a pitcher of water to extin-
guish it.

At the same time official warnings are incessant
against wasting water — as though there were a limit to
the supply. Here we have the very quintessence of
monopoly. Inactive themselves, the municipal council-
lors content themselves with interfering with the free-
dom of action of others.

The employees of a monopoly through all the de-
grees of the hierarchy know their power and use it.
We have already seen this in the case of tobacco.^
But let me illustrate by one or two other examples.

All those who must use government matches have
complained, not alone of their quality, but even of
their quantity.

Ten centime boxes, which bear upon their wrapper,
"Swedish matches, 60 matches," are passable, al-
though they generally contain a certain number of
uninflammable bits of wood. But lately, in the coun-
try, I have had to content myself with boxes at 5
centimes, bearing a label: "French matches, 50
matches."

I observe that the difference in the cost of the
matches is ofifset by a difiference of 10 matches in the
cheaper box, or 17 per cent. less. Matches which
will light are the exception.

Now please notice that in our democratic country
these cheaper matches are provided for people in poor

' See above, book 2, chapter 20.
349

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

circumstances. Yet the department is deceiving them
in regard to the quality of the goods.

In order to sell its matches, the government reUes
on wholesale and part wholesale merchants. The
first must buy a supply at a minimum sum of 20,000
francs, and the second at 2,000 francs. The commis-
sion in the first case is 16 per cent, and in the second
14 per cent. The total profit from these commissions
is not realized by the merchants, because they are
forced to pay commissions to groce ■ and other retail
merchants up to 10 per cent.

Nevertheless, small as they were, the government
determined to reduce the first-mentioned commis-
sions, which it considered too generous, and an order
of December 30, 19 11, provided that, beginning with
February i, 1912, the commissions should not only be
lowered to 15 and 13 per cent., respectively, but also
that only those shall be considered as wholesale mer-
chants who buy 20,000 francs' worth of matches at a
time, and at least 125,000 francs' worth a month.
Against this last condition, however, interested parties
protested, and the director general of indirect taxes
(Directeur General des Contributions Indirects) in-
formed his departmental heads that the order aforesaid
would be modified in regard to this special point. The
number of middlemen was also reduced because, by
demanding large sums from a few, the government
could get along with a much smaller number.

Occasionally those who are curious enough to in-
vestigate will find that they are being deceived as to
the number of matches in the boxes sold by the govern-
ment. Indeed, after a number of experiences of this

350

THE CONSUMER

character, I have become convinced that the depart-
ment looks upon the consumer not as a contracting
party, but as a beneficiary.

In 1906, during several weeks, if not several
months, the situation of the smoker, as described by
Le Journal,'^ was about as follows :

"Yesterday, as I entered a tobacco shop, a customer
was asking for a 70-centime green package of cigarettes.

" 'We haven't any,' answered the dealer.

" 'Then give me a pink package at the same price.'

" 'We are out of those, too.'

"The astonished customer glanced at the luxurious fit-
tings of this large shop on the Boulevard and inquired:

" 'How do you happen to be out of the most popular
brands ?'

" 'Because the supply in the warehouse from which
we order our tobacco is not large enough to meet the
demand. One day it is one kind and another day an-
other which I am refused,' added the clerk, shaking her
head.

"As an actual fact, when one kind of tobacco or cigar-
ettes is manufactured in a district, the warehouses and
their customers, the retailers in that particular district,
must go without all the other brands.

" 'I don't know where all this will end,' continued the
clerk. 'First customers complain, then they become an-
gry, and we can do nothing about it. And yet it is too
bad to lose a sale through the fault of the manufac-
turer!'"

The article terminates thus:

*JuIy 30, 1906.

351

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

"Many deceptions are complained of, such as cigar-
ettes which unwrap the moment they are hghted, over-
moist tobacco, etc. The inequality in the weight of the
packages is especially astonishing.

"One retailer weighed a certain number of packages
of ordinary tobacco costing 50 centimes. Instead of the
regulation weight of 40 grams, from 32 to 35 grams
were found. It is only fair to add, however, that there
were a few weighing 50 grams. The purchase of a
lo-sou package, therefore, becomes a sort of lottery. This
state of affairs occurs, it seems, because there is not time
to weigh the packages in those pretty little patent scales
which are so successful at world expositions, btit of
which there are altogether too few in the tobacco fac-
tories."

Five years after the above article was written I
read in the Figaro of August 20, 1912:

"We mentioned day before yesterday the case of a
user of 'mild tobacco' from whom was demanded the
sum of I franc for a certain green package which bore,
on the label, 80 centimes. 'That is the old label,' was the
scornful answer to the remonstrance of the customer."

"The self-sufficience of the state as a merchant, and
especially a tobacco merchant, is manifested in a number
of other ways. One of our subscribers, a well-known
business man, from the district of the Seine writes us :

'"I am a smoker (unfortunately), but I can only
smoke Maryland, which comes wrapped in yellow paper
at I franc for 40 grams. For some time now I have
been losing three packages out of five because the major-
ity of the packages of Maryland contain caporal supe-
rieur, a tobacco so strong that I cannot smoke it. In ad-
dition to the total loss of the package, which I give away

352

THE CONSUMEft

to people who can endure this tobacco, I am cheated in re-
gard to the price, since a package of caporal superieur is
sold for only 80 centimes when it comes in blue packages,
and, therefore, I am paying i franc for the same tobacco
in a yellow wrapper.'

" 'If, by chance, I get packages which really contain
Maryland, I never get the same tobacco. Sometimes it
is light, sometimes it is brown, often it is as black as the
ace of spades.

" 'I can show you packages of Maryland which con-
tain nothing but caporal. . . .'"

"What merchant would dare to use his customers
in such a way?" asks Figaro.

No private merchant, certainly, because the dealer
who calls down upon himself the wrath of his cus-
tomers is certain to be ruined. The government, how-
ever, can well afford to disregard its customer, the
public, whom the tobacco monopoly has placed in its
power.

Sometimes, as in the case that I have just quoted,
there is more than mere disregard of a customer, there
is downright cheating as to the quality of the mer-
chandise sold. Such an act would expose a private
individual to civil damages and even severer penalties.
A government can commit such an oflfense with im-
punity, for it does not consider that it is under any
obligation to the consumer.

Service order No. 590, issued with the best inten-
tions by the postal authorities, illustrates the above
fact with amusing naivete :

353

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

"On account of the very considerable increase in traffic
in certain sections during the summer season, it is not
always possible to keep to an absolutely normal course
in respect to correspondence of all kinds, despite rein-
forcements to the overburdened service. This situation
threatens to become still further aggravated this year, on
account of the suppression of a very great number of
temporary positions outside the regular staff which were
formerly distributed among the different districts during
the months of July, August, and September. There is
thus cause to fear that under these conditions letters
which ought always to be transmitted regularly will be
delayed in distribution. With a view to offsetting this
state of affairs, it would seem expedient to devise
methods of causing the public the least possible incon-
venience.

"In order to attain this object groups of volunteers will
be organized upon whom we may call, during spare time
with pay, to sort out mail, the distribution of which can
be delayed without undue inconvenience, viz., postal cards
and printed matter."

Article 21 of the decree organizing the postal service
declares that neither the department nor its employees
can be held responsible. Articles 1382 and 1384 of the
civil code are not applicable to them. Article 22 ex-
pressly stipulates that the Postofifice cannot be held
accountable for the security of private mail.

!| In 1905, on returning from the United States, I re-
discovered in Paris all the joys of the government
telephone. I rang up Central. At the end of one or
two minutes there was a response of "Number,
please." Then I stood and listened to calls for other

354

THE CONSUMED

numbers, private conversations, etc., while waiting for
the operator to condescend to inform me, "They do
not answer," in regard to parties whom I knew had
permanent attendants at the telephone. Or perhaps I
would hear the refrain "busy," a statement which, of
course, could only be verified afterward. I ventured
to protest. Instead of being rewarded for patience I
was penalized for 15 days. No one could reach me,
nor could I telephone anyone. Finally, the department,
tormented by the subscriber who complained so per-
sistently, advised me to "Go and see the Gutenberg
exchange." I went to see the Gutenberg exchange,
and there I described the system in the United States,
where, in New York, even during the busy hours, you
can get your party almost instantly.

" 'But what can you expect ?' said the official who ac-
companied me, and whom I happened to have met in New
York; "they have private companies in New York.'

" 'We won't quarrel on that point ; but the fact re-
mains that these private companies accomplish more
than our government does.'

" 'It would cost us 80,000,000 francs to introduce such
a system.'

" 'Isn't that a slightly exaggerated figure ?'

" 'We are four years behind the times, and yet you
complain when you have to wait five minutes. You can
see for yourself how unreasonable you are.' "

It was, of course, perfectly evident that it was all
my fault as well as that of all the other telephone sub-
scribers who believe that the service ought to be
prompt.

355

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

In France, at any rate, the telephone is in league
with the medical fraternity and the pharmacists, be-
cause it is bound to bring on neurasthenia in all those
who have an3-thing to do with it.^Presumably the Gov-
vernment is encouraging medical consultation, the sale
of bromide of potassium, and patronage of certain hot
springs.

At various times I have been able to demonstrate
the absence of responsibility which especially charac-
terizes government administration.

You follow religiously the directions prescribed by
the telephone regulations in asking for the manager.
At the psychological moment the operator cuts off
the connection. You may remain in the booth for an
hour without obtaining an answer. But let us sup-
pose that, as a great concession, you do get a manager.
The lady's first impulse is to put you in the wrong.
She forces you to submit to an interrogatory, from
which she invariably concludes that if you have rung
too long without any answer; if you have been re-
fused an answer after a call which has lasted 20 min-
utes; if there has been a systematic refusal to give you
any connection at all ; if your wire was labeled "busy"
when it was not, you yourself are the sole offender.

If you ask for the district superintendent, the first
impulse of that personage also is to protect his admin-
istration. He is far less anxious to account for the
facts than to prove to you how culpable you are.

Finally, if your guilt is not clearly established, the
fault is laid to the instrument. An electrician will
speedily appear at your home to repair your telephone.

356

The coisrsuMER

"The apparatus is out of order?"
"No."

He smiles, but he makes a semblance of fixing some-
thing. He is an accomplice of the operator, the man-
ager and of the department at large, against the sub-
scriber.

If he were to act otherwise, his existence would be
rendered intolerable.

At last you go still higher up. An inspector comes
to see you at the end of fifteen days, and proves dog-
matically that whatever is, is right. As for responsi-
bility, no one ever acknowledges any. It is either the
apparatus or the subscriber who is at fault — unless it
be Parliament, which has not voted the necessary ap-
propriations.

But the department is capable of going still further.
It presumes to suspend, on its own authority, the
service of certain subscribers with whom it is at odds.
It arrogates to itself the right of punishing any indi-
vidual who has paid for the privileges of the telephone.
I Any telephone subscriber who desires to socialize
railways, banks, insurance, alcohol, sugar, mines,
petroleum, etc., is simply demonstrating a natural lean-
ing toward martyrdom. If he has not such an inclina-
tion he is at least incapable of understanding the rela-
tion of cause and efifect. He refuses to be taught by
experience, x-

When an individual hands over money to another
individual, in order that the latter may place at his
disposal the use of any service, he should have the free
use of such service. If, on the other hand, an indi-

357

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

vidual accepts a remuneration for rendering a service
which he does not render, he acquires the reputation
of a man with whom it is not safe to do business, be-
cause he does not hold to his contract. In a word,
he would be discredited. In open competition his cus-
tomers would turn from him and go to his rivals. Or,
if self-interest alone were not strong enough to compel
him to fulfill his obHgations, the courts would know
how to force him to do so by subjecting him to severe
penalties.

The case of the government is altogether different.
But at least, when it has been paid for certain services,
it should perform them as faithfully as an individual
would do. The following relatively recent occurrence
proves that the French Government at any rate feels
itself under no such obligation.

The interurban telephone is very convenient if the
residents of the localities so connected can succeed in
getting into communication with each other. When
there was only one telephone line between Paris and
Lille, satisfactory communication was practically out
of the question. But the Chamber of Commerce of
Lille was and is both wealthy and prosperous. There-
fore, it said to the government : "We are going to
pay you for the installation of two additional lines."
The government accepted the oSer. But even with
the two additional lines, users wishing to be connected,
had to submit to long and exasperating delays.

Again the Chamber of Commerce proposed to the
minister : "We are ready to pay for still another addi-
tional line." The government again accepted. Com-
munication was scarcely more prompt.

358

THE CONSUMER

The Chamber of Commerce paid successively for
the installation of two more lines, so that in 1907
Lille was connected with Paris by six telephone lines.
Therefore Lille may be said to have made considerable
sacrifice in order to insure telephonic communication
with Paris. But did it get it? No, for the state has
continued to interfere.

In the case of strikes, like that at Pas-de-Calais in
1906, there has been complete suppression of private
telephone communication. "The rights of individuals
must be considered after the necessities of the state."
This doctrine is all right so far as it goes, but ought
not such necessities to have an end? And has public
interest really demanded the suppression of telephonic
communication between Paris and Lille?

There has been, as a matter of fact, no occurrence
whatever which could make it necessary for the state
to monopolize several of these lines; moreover, in the
month of June, 1907, there were no strikes on any of
the lines. Yet, when a connection was called for, there
came the same old answer : "The line is busy."

"How many lines?"
"Three !"

"And the three others? Why are they not working?
Are they being repaired?"

No, but the prefects, the sub-prefects, the em-
ployees of the prefecture or of the various depart-
ments were using the other lines. Public officials can-
not wait, and therefore they press into their service a
number of the wires paid for by the Chamber of Com-

359

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

merce at Lille in order to insure quick communica-
tion with merchants and manufacturers.

This is a flagrant example of government methods
when it is administering something. The officials are
convinced that they represent higher interests ; and, by
an often unconscious deviation from strict honesty,
they acquire the habit of covering with this excuse
acts which have nothing in common with public service.
In any case, they consider that their business must al-
ways come first, and by virtue of this conviction they
extend, as in this particular case, the government pre-
rogative over facilities which in truth were not estab-
lished by the government and do not belong to it. I
hope that by this time this condition of affairs has
been somewhat improved.

Moreover, while the state is demonstrating this self-
complacent attitude toward the public, it demands the
utmost deference on the part of subscribers. At the
slightest act of disrespect, it constitutes itself at one
and the same time legislator, judge and executioner
for the punishment of the offender, as in the case of
Mile. Sylviac.

The department, in order to punish her for having,
as it declared, addressed a telephone operator offen-
sively, deprived her of the use of the telephone for sev-
enteen days. Meanwhile her subscription ran on, and
thus the lady was paying for a service which was being
refused her.

She summoned the minister responsible for the de-
partment concerned to appear in court, where she de-
manded to be at least reimbursed for her subscription
during the seventeen days when she was refused

360

THE CONSUMER

service. In the case of a private company she might
have demanded damages in addition and the judges
would have decided in her favor.

But the government is not subject to judicial decree
like all the rest of the world, and it has all sorts of
defenses behind which to shelter itself against indi-
viduals. It declared the court incompetent to decide
the question, and the court duly acknowledged its lack
of jurisdiction.

The Council of State, however, the final court of
appeal, did not admit such a plea, and we congratulate
it. It decided that the government, as manager of the
telephone service, is a responsible agent and is subject
to the jurisdiction of the civil courts.

But the telephone department, instead of submit-
ting, set up a new difficulty. It declared that the case,
as concerned with taxes, must be decided not in open
court, but on briefs, according to the procedure of the
judicial courts, under the old political regime. Ulti-
mately the case was decided against Mile. Sylviac.

Evidently subscribers to the telephone have no other
rights or privileges than to be patient and keep their
temper.

Telephone subscription rates are extremely high in
France. In 1907 M. Gourju, a senator, complained
of the high rate which, at Lyon, was 300 francs. That
city has 3,400 subscribers. If the number of its sub-
scribers were in proportion to those of the five most
important cities of Switzerland, viz., Geneva, Lucerne,
Berne, Zurich and Basle, it should have 25,000.

The assistant secretary of state for the Postal, Tele-
graph and Telephone department has attempted to ex-

361

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

plain away the high rate and the absurdity inherent
in the fact that 400 francs must be paid in Paris, 300
francs in Lyon, and 200 francs in Marseilles, at the
same time asserting that the rate cannot be lowered.
Why ? Because there would be too many subscribers.

Under a system of free competition the producer
seeks to extend his clientele indefinitely. A govern-
ment monopoly looks for an advantage in restricting
the number of its users and in the elevation of prices.
The answer of the assistant secretary of state only
goes to confirm the general truth of this rule. The
sole thought of the Telephone department has been to
prevent an increase in the number of subscribers.
Every subscriber who has dropped out has been given
a hearty god-speed. Each new subscriber is an enemy.
One minister was imprudent enough to promise a re-
duction in rates from 400 to 300 francs. What would
become of the service if the promise of the budget had
been kept? The courageous minister had neglected
to consult existing possibilities ; therefore the rate has
been maintained at the same figure down to the present,
and the fear of the subscriber must still persist, because
there are no more suggestions of rate reduction.

And, anyway, how could the department solicit new
subscribers when it is unable to assure service to its
present subscribers?

As a matter of fact the department has not the neces-
sary equipment. As a last resort there are appropria-
tions. But even when these shall have been obtained,
the department will still find itself in arrears, and, as
for a reduction in the rate, it will not make one for
fear of an increase in the number of subscribers.

362

THE CONSUMER

Neither does the Telephone department make any
effort to give the pubHc maximum service at minimum
cost. Instead it restricts the service and pleads expense
as its defense against the influx of demands for tele-
phone service. Indeed, one senator has gone so far as
to say that the postal and telegraph service in France
is worse than that in any foreign country. But this
is too complete a generalization. In most countries it
is certainly worse than in France. If the assistant
secretary of state had returned a similar answer to his
critic he would have been in the right.

But not at all. He must generalize in his turn, and
therefore he exclaims : "I cannot allow it to be said
that the postal and telegraph service is inferior in
France to that of foreign countries."

The telephone service was and is still very much bet-
ter in Switzerland, in Belgium and in the United
States than in France. When the telephone service of
Great Britain was transferred from private manage-
ment to that of the postmaster general. Lord Daven-
port, director of the Port of London, in a letter pub-
Hshed in the Times of February 12, 1912, complained
that "the telephone service has become impossible and
commerce is suffering in consequence." The Post-
master General did not deny the accusation. On the
contrary, he contented himself with saying that "the
difficulties in London are those found in all large cities,
and the subscribers can be certain that the department
is doing its best." ^

But, as the Times has observed, state operation of
the telephone has effected a change for the worse in

' See Appendix "C."

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

the situation of the subscribers. When they were de-
pendent upon the National Telephone Company, the
complaints of subscribers did not go to the bureau
against which they were made, but directly to the
management of the company. Forms were made out
which could be addressed to the management, and the
effect of these was admirable. The operator knew
that any complaint would be followed by a thorough
investigation. The government suppressed these com-
plaint forms and replaced them by a letter. This letter
has proved utterly ineffective. (The Times j February
13. 1913-)

Social and municipal theorists are constantly receiv-
ing flat contradictions to their assertions regarding the
value of institutions fostered by them.

Sometimes the consumers of a government enter-
prise stand in the light of a privileged class, but this
is always a precarious position, because it is not based
upon contracts mutually agreed to and the infringe-
ment of which may be punished like that of any private
contract.

In 1903 the Belgian Socialists boasted of the good
fortune of those who patronized the Saar coal mines
belonging to the Prussian government. Paul Trasen-
ster, Belgian deputy, proved, however, that such eulo-
giums were not merited. Later the Chamber of Com-
merce at Saarbriick brought to light facts which
completely supported the deputy's contention.^ More-
over, in its report of 1903, the Chamber reproached
the management of the fiscal mines with having pre-

' Organe Industriel, of Liege, August i, 1903.

THE CONSUMER

vented any relief to the iron ore industry by levying
exorbitant rates during periods of depression.

When the Saar mines passed into possession of the
Prussian state, about 1863, it was expressly understood
that every citizen should have the right to buy coal.
But the management of the mines, instead of hold-
ing the balance even between all the coal dealers of
the district, granted a veritable monopoly for the sale
of it in France to two firms, by granting them a rebate
of 0.50 marks per ton. For itself it reserved the ex-
clusive monopoly of supplying iron and steel works,
railways and gas companies.

The rest of the merchants of Saarbriick, who help to
supply the French market, have been obliged to get
their coal in Belgium and from the district of La Ruhr,
and have been the most active agents in the competition
of coal and Belgian compressed fuel with the Saar coal
in Eastern France.

Edgard Milhaud quotes the following passage from
a study of the German trust made by Arthur Raffalo-
vich in 1909.^

"One of the most serious reproaches that can be
brought against the trusts is that of preventing the full
and free utilization of the sources of production. From
1906 to 1908 the Rhenish- Westphalian cOal company
produced 67.63 per cent, and 55 per cent, only of the
visible supply. The potash trust succeeded in utilizing
33 per cent, of the capacity of the various producing
centers, when, if their capacity had been fully developed,
the sale price would have been reduced 45 per cent."

^ L'Bconpmie Publique, November, igii.

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

Then he concludes:

"Such are the new economic methods introduced by
monopoHes either national or international."

This monopoly is under the protection of the gov-
ernment. Edgard Milhaud opposes to it "public opera-
tion as a superior economic tenet." But public opera-
tion is nothing but a more complete monopoly; and,
"far from freeing the productive forces thus chained
and bound," it would only add a thick-headed tyranny
both scornful and lethargic, as the facts already cited
go to prove.

The German government favors the trusts, while
Prussia maintains that it can limit their demands by its
mining operations. However, on January 12, 1912,
the Prussian government abandoned this pretense and
capitulated before the Rhenish-Westphalian coal trust
in regard to Westphalian coal. Production is not to
be limited, but the coal is to be sold by the company.
The company consented to decrease by a half the
normal price for coal and compressed fuel and by a
seventh the rate for coke. The fiscal mines will pay a
minimum quit rent of 6 per cent., while private com-
panies pay 12 and 7 per cent.

In 1893 I repealed the law suppressing private em-
ployment bureaus. It was not promulgated again until
much later, March 14, 1904, when every municipality
numbering more than 10,000 inhabitants was ordered
to establish a free employment bureau. I had proved
that municipalities could not fulfill this obligation.

If the law had ever been put in force, 258 bureaus
366

THE CONSUMER

would have had to be established in these cities of
10,000 inhabitants. In 191 1 the Commissioner of
Labor declared in a circular that in 132 of these cities,
or 51 per cent., there was no municipal bureau in
operation. For the whole of France, Paris included,
the total number of positions filled annually by public
employment bureaus averages 85,000. According to
the minister of the Interior "the municipal employment
bureaus have not accomplished that which the govern-
ment expected of them." Yet he had counted upon
them in the first instance to compete with private busi-
ness.

Nevertheless this same minister, with superb op-
timism, declared that, although the law had failed, it
was not the fault of the law. It was not sufificiently
complete, that was all. It would be necessary to put
in force the German system which associates with the
employment bureaus the so-called Conseils de Prud'-
hommes.-"^ This committee collects all indispensable
information. It deals with the workers and the domes-
tics for whom it has found positions if they have given
occasion for complaints. In France, an order of Octo-
ber 25, 191 1, attempted to establish employment bu-
reaus on the model of the German bureaus. Subsidies
were granted from that date to bureaus which should
have fulfilled the three following conditions :

1. They must be under the control of a non-
sectarian committee with a neutral presiding officer
having no vote;

2. They must continue their functions in case of

^ Arbitration committees, composed partly of employers and
partly of workingmen.

367

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

strike or lockout, meanwhile advising the applicants
that such a conflict exists;

3. They must have placed an average of 25 appli-
cants a month. ^

Presiding officers may be found perhaps for these
bureaus, but will they come to the meetings? What
will they do there if they do come ? They cannot even
settle the question between the two parties by a casting
vote, since they have no vote. Such bureaus will per-
haps find members, but members will be unable to do
anything even if they should have any inspiration in
any direction, because they will have neither sufficient
appropriations nor police power (fortunately) in order
to obtain information indispensable to their work as
spies. Finally they would perhaps receive offers of
employment, but would they continue to receive de-
mands for work?

When the employees of the Postal, Telegraph and
Railway departments organize strikes, they resolutely
sacrifice to their own interests those of their fellow
citizens. They are speculating on the weariness, the
privations, the disasters that inevitably follow as well
as upon the weakness of the government in its atti-
tude toward them.

I have not spoken in this chapter of the patrons of
state railways. I have already demonstrated suffi-
ciently the fate of both passengers and merchandise
when confided to their tender mercies.

^Bulletin de I'OMce du Travail, February, 1912.
368

CHAPTER VII

PROGRAMS OF ORGANIZATION AND REGULATION

The American Investigation. — Economy and Efficiency in
Government Service. — Labor. — Three Methods of Re-
cruiting and Promoting. — Regulation of Government
Railways. — "Industrial Efficiency." — Giolitti and the
Hopes of Italy. — Elimination of the Politician. — Mod-
esty of the Partisans of Public Operation. — The De-
partment Substituted for the Minister. — The English
Admiralty and Winston Churchill. — M. Chardon and the
Fourth Power. — Impossible to Give Government Service
Industrial Efficiency. — Either Stagnation or Disorder.

Plans to make the wheels of government run
smoothly are numberless. Parliaments have been dis-
cussing such plans for years, and publications suggest-
ing all sorts of methods to that end form an enormous
library in themselves.

Under the acts of June 23, 1910, and March 3,
191 1, the President of the United States, Mr. Taft,
appointed a commission charged with the duty of in-
vestigating the manner in which various Federal de-
partments and public enterprises were being managed.
Among other things the Commission was to make a
report indicating methods by which greater efficiency
and economy might be brought into the public service.

369

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

Four volumes of this report, entitled Efficiency and
Economy in Government Service, have already ap-
peared. Two contain the report to the President on the
organization of the government of the United States
on July I, 1911, and his message of January 17, 1912.
A third contains another presidential message, dated
April 4, 1912, together with the reports of suggested
modifications to be introduced into the various depart-
ments and the remarks of the heads of the departments
thereon. A fourth small volume contains a third mes-
sage of the President, transmitting the conclusions of
the commission regarding the centralization and the
distribution of government publications.

The fact that such an investigating committee was
appointed at all is, of course, a sufficient proof that
Congress and the President had found that all was not
going well in the Federal administration of the United
States. But where is the country whose administra-
tion is perfect? Do we Frenchmen not hear every
year, apropos of the budget, and especially this year
in regard to the organization of the budget of 1907, the
most violent attacks against the French administrative
system and its methods? To increase the activities
of the government is not the way to improve its
habits or to bring about economy. Such is, neverthe-
less, the homeopathic remedy which a number of those
who are indulging in the most violent criticisms are
now proposing.

The authority of the Federal government of the
United States extends over a territory equal to that
of eight-tenths of Europe and over a population of
92,000,000 people.

370

PROGRAMS OF ORGANIZATION AND REGULATION

"The operations of the Government affect the interest
of every person living within the jurisdiction of the
United States. Its gross expenditures amount to nearly
$1,000,000,000 annually. Including the personnel of the
Military and Naval establishments, more than 400,000
persons are required to do the work imposed by law upon
the executive branch of the Government.

"This vast organization has never been studied in de-
tail as one piece of administrative mechanism. At no
time has the attempt been made to study all these activi-
ties and agencies with a view to the assignment of each
activity to the agency best fitted to its performance, to
the avoidance of duplication of plant and work, to the
integration of all administrative agencies of the Govern-
ment, so far as may be practicable, into a unified organi-
zation for the most effective and economical dispatch of
public business."

Mr. Taft makes the same complaint in regard to
American official documents that has been made
against similar French documents, and which can be
brought against the official documents of every coun-
try:

"Notwithstanding voluminous reports, presented an-
nually to the Congress, no satisfactory statement has ever
been published of the financial transactions of the Gov-
ernment as a whole. Provision is made for due account-
ability for all moneys coming into the hands of officers.
But no general system has ever been devised for
reporting information as to the actual costs entailed in
the operation of individual services nor to make possible
the exercise of intelligent judgment concerning the value
of the results obtained when contrasted with the sacrifices
required. I am convinced that the time has come when

371

Where A^fD why public ownership has i^aILeo

the Government should take stock of all the activities and
agencies and formulate a comprehensive plan with refer-
ence to which future changes may be made. The report
of the commission is being prepared with this idea in
mind."

One great diflficulty in all countries is the recruiting
of employees : how to enlist the ablest men and put
them into the positions to which they are best suited.

The message of Mr. Taft of April 4, 191 1, declares
that legislation must establish "a merit system which
will guarantee to the people in the conduct of the pub-
lic business the advantage of officials chosen for their
capacity and devoting their time and their talent exclu-
sively to their duties." This is a desire more easily ex-
pressed than realized. An unhampered selection of
employees is only too apt to result in favoritism and
injustice.

Competitive examination is a Chinese method which
by no means insures capability. In the competitive
examinations of British India, the Hindoos succeed
where the Musselmen fail, and the Musselmen protest
in the name of all humanity that competitive exami-
nations too often bring out nothing but the qualifica-
tions of a parrot.

Promotion based merely on length of service puts
a premium on inertia and incapacity.

Whatever may be the disadvantages of promotion
based on arbitrary selection, it is the only method
which will place the really capable man in higher posi-
tions. Private industry proves this.

Promotion by selection is a system that is not
adopted and that cannot be adopted by a state. Selec-

372

Programs of organization and regulation

tion, instead of falling upon the more serviceable man,
will inevitably fall upon the man who has the greatest
amount of pull. The Navy has its "sons of the Arch-
bishop," while all departments have "the sons of their
fathers."

Every trading operation demands regulation, but
the regulation of a state department tends to become
so minute that very often it becomes an end in itself
and impedes action.

The state railway of France, for example, is sub-
ject to the administrative control of the department
of Public Works; to the department of Finance, which
regulates its expenditures; to the judicial control of
the Court of Accounts; and finally to parliamentary
control, which, aside from all the others, appears in
three separate and distinct phases in the budget of the
state railway system.

Under the title Industrial Efficiency of the State Rail-
ways M. Baudin demands the abolition of these in-
dispensable censorships. In other words, he is asking
that the management of the state railways be permit-
ted to issue bonds in such quantity, at such time, and
at such rate as it may deem wise. However, no sane
minister of Finance will ever permit a government de-
partment to use government credit at its pleasure.

State undertakings have no "industrial efficiency,"
because they are subordinate to the general interests of
the state and they must be rigorously controlled.

In 1905 a grand centralization of the Italian rail-
ways was begun. There was a general desire to have
important government undertakings concentrated in

373

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

Rome, and therefore the entire organization of the
railway lines was broken up. In 191 1 Minister
Sacchi made an attempt to model the government rail-
way service upon the system being operated with suc-
cess by the Adriatic Railway Company. Theorists
and experts in government and municipal operation
took care to announce : "Our system will be an ex-
cellent one because it is to be managed like a private
enterprise." Giolitti also emphasized this policy in his
explanation of the reasons for taking over life insur-
ance:

"We have no intention of creating a new organization
of bureaucrats, but a truly independent undertaking
which will differ from private business of the same kind
only in the fact that it will be the property of the gov-
ernment. The fact that this enterprise belongs to the
state does not imply that it has a character different from
that of private enterprises. In so far as we are con-
cerned, the sole difference is to be found in this fact
that the proprietor is not an individual."

January 17, 191 1, M. Globinski, Austrian minister
of railways, insisted in an ordinance "on the essen-
tially commercial character of the railways, of which
the bureaus ought to take due account."

In the end all efiforts to repudiate the essentially ad-
ministrative character of public undertakings are a real
condemnation of them. Why try to make a state en-
terprise do what it really cannot do ? The private en-
terprises which it is replacing are presented to it as
models to be imitated. Were they then so good ? At

374

PROGRAMS OF ORGANIZATION AND REGULATION

any rate they were better adapted to their purpose than
the public undertaking substituted for them.

There is only one legitimate motive for substituting
public ownership for private enterprise ; that is, the ab-
sorption of the profits of private companies for the
benefit either of consumers or taxpayers, on condition,
of course, that such profits are to be made.

The Italian National Insurance Fund is a legal en-
tity, and its management is autonomous. Nevertheless,
the insurance policies which it issues are guaranteed by
the state.

Its management consists of: (a) An administrative
council; (&) a standing committee; (c) a general man-
ager; (d) trustees; (e) a technical and soliciting staff.

The administrative council is composed of nine mem-
bers, and is appointed by royal edict on the motion
of the minister of Agriculture, Industry and Com-
merce. The same edict appoints the president and the
vice-president of the council. Four of its members are
public officials, and four others private individuals.

M. Jeze is enthusiastic because the management is
out of reach of the influence of senators and deputies
and, in a general way, of all persons holding elective
offices. "Therefore, all political interference is re-
moved from the operation of the enterprise."

Now the men who propose and vote for government
monopolies are politicians, ministers, deputies, sena-
tors. Yet, at the very moment that they are increas-
ing the functions of the state, they are branding the
men who direct the state with dishonor. For in order
to heap up the measure of irony, they declare that they

375

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

are incapable of managing the very institutions with
which they themselves have so generously dowered the
state. Modesty can surely be pushed no further than
to say: "We will vote for state monopolies, but we
declare ourselves unfit to administer them, because if
the politicians who vote for them, and among whom
we count ourselves, should manage such enterprises,
disorder, injustice and corruption would ensue. There-
fore we decline for ourselves, and we refuse to any-
one who has been a senator, deputy or minister the
privilege of managing the National Insurance Fund."

That ministers, senators and deputies have adopted
this inconsistent attitude may be a proof of their lofty
sense of public duty, but can they really believe that
they are enhancing the prestige of deliberative assem-
blies by declaring themselves unworthy to direct
monopolies that they themselves have created? Are
there not men in public life "who have demonstrated
their technical and administrative capacity"? No
matter! The title "member of parliament" appears to
be reason enough to disqualify them.

But the members of the administrative council
above referred to are appointed by ministers who are,
of course, public men. Ministers also appoint the
general manager. Are we then to believe that all po-
litical considerations are eliminated in these selec-
tions ?

Finally, the trustees must present annual reports,
which it is the duty of the minister of Agriculture, In-
dustry and Commerce to communicate to Parliament,
together with the report of the managing council
(Conseil d' Administration de la Caisse). Moreover,

376

PROGRAMS OF ORGANIZATION AND REGULATION

the technical and analytical balance sheet containing all
the data, admitting of estimate as to the profits realized
by the Fund from each contract and each form of
insurance, according to the nature of the insurance
operations, must be communicated to ParHament every
three years.

Consequently the interference of politicians, to use
the scornful title of Professor Jeze, is not completely
eliminated from the management of the National In-
surance Fund. Moreover, it cannot be eliminated from
any government monopoly, except by constituting such
monopoly a power apart and placing it above all other
institutions of the country. The ministers appoint the
important officials. The government has always the
right of control, and every three years a detailed ac-
count of the business of the monopoly must be sub-
mitted to Parliament.

In a report of M. Gaudin, of July, 1912, I read the
following regarding supplementary appropriations to
the state railway of France:

"The administrative organization of the state system
tends to eliminate all political interference with the
employees. The form of the statute as actually pre-
pared, by the execution of articles 58 and 68 of the law
of July 13, 191 1, serves to keep the department free
from all external influence."

This looks well in print, although everyone knows
that it will not amount to anything. The statute ap-
peared April 31.

In October the director of the state railway sys-

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

tem addressed a letter to the deputies, declaring that in
future no further attention would be paid to their rec-
ommendations. A single incident, however, is helping
to prove that attention will at least be paid to whatever
the subprefect shall ask of the official spy called the
municipal delegate.

In 19 12 Winston Churchill presented as his own
naval program the demands of the Board of Ad-
miralty. "The Board of Admiralty settles everything;
the cabinet only registers its decisions," said the
Economist.^ If each service were to settle its own
affairs in complete independence, what but anarchy
and ruin could result? It is the duty of the govern-
ment to determine, according to general political,
financial and economic conditions, the part that each
service ought to play in the general scheme of things,
as well as in regard to the manner in which such serv-
ice is being carried on. Coordination of effort and re-
sponsibility is the condition of the existence of a na-
tion. The men at the head of public affairs are alone
able to bring about such coordination, and they ought
to assume not only the task, but likewise its responsi-
bility.

Every extension of governmental functions involves
new duties and the creation of new officials, while, at
the same time, it increases the importance of those al-
ready in office. The preponderant role which politi-
cians themselves yield to bureaucracy is easily seen.
They declare themselves incapable, and abdicate in
favor of the bureaus.

' July 27, 1912.

3;8

PROGRAMS OF ORGANIZATION AND REGULATION

All this appears so natural that a recording secre-
tary to the Council of State, M. Chardon, favors the
organization of a fourth division of government to be
called "the administrative power." He declares that
the director of any state department should be able to
appeal through his writings and speeches, and also by
his position, as a commissioner of government no
doubt, against the decisions of his ministerial superior.
But surely the heads of departments would have a logi-
cal right to the same attitude toward their directors;
the managers of bureaus toward the head of their de-
partment ; and the assistant managers in regard to the
managers of the bureaus ; the head clerks and the cleri-
cal staff with respect to their superiors, and so on.
The moment any such power comes to be recognized
anarchy will have been proclaimed.

Administration is not a power comparable to the
executive, legislative or judicial power. It is an essen-
tial part of the executive power. It can neither be sep-
arated from it nor exist apart from it. An executive
power which has for its prime duty the security of the
people of the nation at home and abroad can be only
a political power.

It is precisely because of the essential nature of the
executive power that duties foreign to it, and which
must inevitably corrupt, disintegrate and prevent it
from fulfilling its real functions, ought not to be
forced upon it.

All attempts to give "a business organization" to
government enterprises are condemned to failure in
advance. Either such undertakings will languish un-
der an abuse of control which would impede action, or,

379

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

while operating in full liberty, they will fall into moral
and financial disorder. And let it not be forgotten
that stagnation and disorder far from nullifying fre-
quently reinforce each other.

380

BOOK IV

POLITICAL AND SOCIAL CONSE-
QUENCES OF PUBLIC OPERATION

CHAPTER I
SOCIALIST PROGRAMS AND THE FACTS

1. An American Idea.

2. Facts and Programs. — Organization of Public Service.

Legal Monopoly. — Natural Monopoly. — Actual Monop-
olies Transformed into Legal Monopolies. — Restor-
ing the Profits of Capitalism to the Community. — Ex-
haustion of Taxable Property. — Fiscal Monopolies. —
A Quotation from Montesquieu. — Fraud. — Resolution
of the French Chamber of Deputies in Favor of the
Alcohol Monopoly. — Georges Cochery and the Alcohol
■ and Insurance Monopolies. — Significance of His Words.
Adoption by the Budget Committee of 1901 of a Pro-
posal to Set up a Petroleum Monopoly. — Proposal to
Monopolize the Importation of Wheat and Flour.

3. Daring Theories. — Timidity in Application. — Socialism

Under Cover and Socialism on Parade. — Ramsay Mac-
donald.

4. Municipal Socialism. — Platform of the Three Political

Groups in Great Britain. — The International Socialist
Congress of 1900 and the Municipal Program. — The
Claims of M. Lafferre in the Name of the Radical and
Radical-Socialist Party.— The True Founders of Mu-
nicipal Socialism. — The Congress of St. Quentin.—
Method of Combating Capitalism and Middle Class Po-
litical Conservatism.

381

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

5. The Dupes. — A Project of Municipal Bakeries and
Butcher Shops.

1. In opposition to the principle of freedom of com-
merce and industry held generally throughout the
United States, Twentieth Century Socialism,^ a post-
humous work by an American named Edmond Kelly,
ofifers the following remedy for contemporary politi-
cal, social and industrial unrest :

The Socialist organization recognizes both private
and public property. Certain industries will be fully
socialized. In such industries capitalist direction and
operation will be wholly eliminated. The production of
those things for which the demand is great, and espe-
cially those which can be most easily and fraudulently
adulterated, will be socialized, as will be the case also in
industries of which a monopoly is readily established.
Other industries, as petroleum, will be given over to the
regulation of a syndicate of workingmen with a board
of directors in which the state will be represented in
order to insure state control.

The private ownership of farms will be maintained,
but private ownership in cities will be suppressed.

I mention this book, because it has attracted some
attention, although the childish simplicity of its pro-
posals is sufficient for an estimate of its value.

2. In the Socialist vocabulary the establishment of
state and municipal monopolies is called "the or-
ganization of public service," and a distinction is
made between legal monopolies and natural monopo-

' Longmans, Green & Co., New York, 1910.
382

SOCIALIST PROGRAMS AND THE FACTS

lies. In the end, however, this difference disappears,
for private property is to be confiscated, whether it be
under the name of railway operation, mining or the
distribution of hydro-electric power. Ministerial of-
fices are to be abolished, and notaries, attorneys and
bailiffs transformed into functionaries.

Socialists are quite willing to acknowledge that
the refining of sugar or of oil is neither a legal nor
a natural monopoly, but these industries, concentrated
as they are in a small number of hands, are virtual
monopolies. Therefore, if the government finds it
worth while, they are to be converted into public serv-
ices. Indeed, state and municipal monopolies, being
easy to organize and to operate, are going to deprive
the capitalists of magnificent profits, which will be
restored to the community.

To economize in the budget is out of the question;
by the income tax the incomes already subject to
super-taxation will be so reduced that the state
revenue will be absolutely insufficient to meet the
needs of the social budget of either the Radical and
Radical Socialist party or of the Sociahst party. The
only available remedy, therefore, will be to establish
fiscal monopolies.

Socialists also hold that when any commodity is
burdened with heavy indirect taxes, that commodity
ought to be transformed into a monopoly; and apropos
of this they have quoted inaccurately the following
passage from Montesquieu : ^

"In order to make the purchaser confound the price
of the commodity with the impost, there must be some
^Esprit des Lois, book 13, chapter 8.

383

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

proportion between the impost and the value of the com-
modity; for which reason there ought not to be an ex-
cessive duty upon merchandise of little value. There are
countries in which the duty exceeds seventeen or eighteen
times the value of the commodity. In this case the prince
removes the disguise — viz. — subjects plainly see they are
dealt with in an unreasonable manner, which renders
them most exquisitely sensible of their servile condition.

"Besides, the prince, to be able to levy a duty so dis-
proportioned to the value of the commodity must be him-
self the vendor and the people must not have it in their
power to purchase it elsewhere: a practice subject to a
thousand inconveniences."

Montesquieu might have been able to approve with-
out reserve the substitution of a monopoly for heavy
taxes; but we no longer live in the times when two
lines from Hippocrates or Aristotle decided our prob-
lems for us. We see, however, under what conditions
and with what reserve Montesquieu explains the mo-
tives which cause the government to act in this manner.
For their own purposes the Socialists have made capi-
tal of his text ; but, after verification, it proves refrac-
tory.

Still another argument invoked to-day in favor of
state monopoly is that it will suppress customs frauds.

Yet in France there are districts in which the tax
upon matches yields no receipts, and between the
frontier of Belgium and France the principal occupa-
tion of the customs officers is preventing the smug-
gling of tobacco. It is in regard to just such a condi-
tion as this that Montesquieu has declared :

384

SOClALiSf tROGfeAMS AND TttE FACTS

"Smuggling being in this case extremely lucrative, the
natural and most reasonable penalty — namely, the con-
fiscation of the merchandise — becomes incapable of put-
ting a stop to it; especially as this very merchandise is
intrinsically of inconsiderable value. Recourse must
therefore be had to extravagant punishments such as
those inflicted for capital crimes. All proportion, then,
of penalties is at an end."

But it is said that in France tobacco is a lucrative
monopoly (we do not talk so much about matches),
and a monopoly of alcohol is being considered. As a
result of the Socialist propaganda in 1904, the French
Chamber of Deputies adopted the following resolu-
tion:

"Beginning with January i, 1905, the government will
introduce a monopoly of the manufacture, adulteration,
modification and importation of alcohol.

"No new distillery may be created after the promulga-
tion of this law."

That resolution remained on the table, but five years
later, November 19, 1909, Georges Cochery, then min-
ister of Finance, said:

"The question of an alcohol monopoly agitated some
years ago and taken up with enthusiasm was soon after-
ward dropped. It has again been taken up, however,
and an examination of the whole subject will shortly be
made. (Loud applause from the extreme left, namely,
the Socialists and Radical Socialists.)

"But before it is investigated still another problem
may possibly be brought up — the question of an insur-

385

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

ance monopoly, or at least a monopoly of certain kinds
of insurance."

When such words as these are spoken by a minister
of Finance, they acquire a significance that skeptics,
the indifferent and, with much more reason, interested
parties (and in this case the interested parties are the
whole body of consumers and taxpayers) would make
a mistake in passing over. The vote on the resolu-
tion of the Chamber of Deputies shows of what aberra-
tions majorities are capable.

In October, 1901, the Budget Committee, after hav-
ing rejected a tax of i franc 50 per cwt. on crude
petroleum proposed by M. Caillaux, minister of
Finance, passed by seven votes against four and two
or three absences a bill introduced by Marcel Sem-
bat and worded as follows :

"Article i. — The purchase, refining and sale at whole-
sale of petroleum are exclusive prerogatives of the state
throughout its territory."

On the same day the Committee introduced the ar-
ticles of the Sembat bill in its finance law.

On February 17, 1894, M. Jaures introduced a bill
signed by Thierry-Cases, Bepmale, Millerand, Viviani,
Desfontaines, Sembat and Vaillant, as follows:

"The state has the sole right to import foreign wheat
and flour.

"It will sell these commodities at a price fixed annually
by law.

"It will sell flour at a price based on the price of
wheat and also determined by law."

386

SOCIALIST PROGRAMS AND THE FACTS

In 1903 MM. Paul Constans, Ed. Vaillant, Mar-
cel Sembat and nine other Socialist deputies, "in
order to put an end to the food crisis," introduced
a bill, the first clause of which suppressed the customs
duties upon wheat and flour, but clause 3 of which
"charged the government with the duty of importing
wheat and flour and buying it at home as well as
abroad in quantities necessary and sufficient for na-
tional needs."

Clause 4 established a commission charged with or-
ganizing "within the shortest possible period a na-
tional commercial service to supervise the food sup-
ply, including especially provision by the government
and the state and municipal storehouses of quantities
of wheat and flour; the establishment of national and
municipal mills and municipal bakeries ; and finally co-
operative agricultural production."

3. But side by side with the above audacities went a
timidity of execution springing from past experi-
ences.

In 19 12, at the Congress of the National Railway
Association, Albert Thomas, a Socialist deputy, ad-
vised the postponement of the purchase of lines other
than the Western, saying:

"The purchase must be carried out in a different man-
ner from that of the Western. Ft will be necessary to
secure the financial autonomy of the system ; the partici-
pation of the employees in the management; and also
public representation therein. In order to conduct a cam-
paign for nationalization, at present neglected, we must

387

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

have a solemn declaration on the part of an organized
proletariat."

And M. Odinot adds:

"When the end of the franchise granted the companies
by the state shall have come, a considerable effort will be
necessary in order to bring about a general purchase."

Thus the leaders were anxious to temporize. They
understood that for them promises and programs are
worth far more than realization. Such a statement,
however, in bald terms would have been a confession
of lack of power and of charlatanism. They therefore
sought pretexts for postponing action and in so doing
furnished an illustration of two phases of Socialism:
one underhanded and cowardly; the other — meant for
exhibition — full of audacity.

In spite of the cautious advice of their leaders, how-
ever, the delegates answered by passing, almost unani-
mously, an order of the day providing for immediate
nationalization.

In any event — if Socialist councils prevail — when
the time comes for the roads to be turned over to the
state, they will scarcely be worth the trouble of buy-
ing. As the contracts which bind them, however, do
not expire for more than 40 years, some time must
elapse before there is any further extension of the ex-
periment of state operation of railroads.

In the United Kingdom, in the course of the dis-
cussion over the answer to the speech from the throne
of February 15, 1912, Ramsay Macdonald, President

388

SOCIALIST PROGRAMS AND THE FACTS

of the Labor party, presented to the House of Com-
mons as a remedy for industrial unrest "the fixing of
a minimum salary and the nationalization of the rail-
ways, mines and other monopolies." But he did not
develop the last point of his amendment any further.
Sir F. Banbury remarked that the Labor party had
introduced this last bill only in order to prove to the
electors that it was still alive. Mr. Robertson, parlia-
mentary secretary of the Board of Trade, congratu-
lated Ramsay Macdonald on the discretion with which
he had supported it.

4. The Social Democratic Federation, the Inde-
pendent Labor Party and the Fabian Society are all
agreed in following up a resolution adopted in 1896
advocating nationalization of the mines, railways, ca-
nals, telegraphs and telephones ; and the municipaliza-
tion of water, gas, electricity, omnibuses, pawn shops
and steamboats ; the manufacture and sale at retail of
tobacco, bread, coal, milk and other fundamentally
necessary commodities ; the construction of workmen's
houses; the manufacture and sale of alcoholic drinks.

The International Socialist Congress held in Paris in
1900 passed the following resolution:

"That it is the duty of all Socialists to force a recogni-
tion in all projects for municipal reform that they are
important only in so far as they foreshadow a collectiv-
ist government, and to force upon municipalities public
services such as urban transportation, education, baker-
ies, medical attendance, hospitals, water supply, the dis-
tribution of power, public works, the police, etc."

389

Where and why public ownership has failed

In 1904 the Radical and Radical Socialist party
adopted the same municipal program as that just
quoted, but, in refusing to recognize that it had bor-
rowed its program from the Socialists, the party even
went so far as to claim the theories thus indorsed as
it own exclusive property — under the circumstances a
somewhat cool proceeding. February 10, 1904, M.
Lafferre, then president of the Executive Committee
of the Radical and Radical Socialist party, spoke as
follows :

"The key to the municipal financial problem lies in the
application to it of an economic program consisting al-
most wholly of a municipalization of all utilities in com-
mon use; gas, electricity, power, general transportation,
etc."

Further on, M. Laflferre speaks with enthusiasm of
"municipal fire insurance." He regrets that the Coun-
cil of State has not permitted the estabhshment of "a
municipal pharmacy at Douai" ; he dilates upon the
encouragement which should be given to the construc-
tion of cheap houses; he regrets that it is only with
great difficulty "that municipalities can obtain author-
ity to subsidize cooperative joint stock construction
companies."

He adds finally: "Certain skeptical minds assert
that our program is nothing but a sort of sweetened
Socialism. It should be insistently repeated that this
program is ours, altogether ours." After which he
adds:

"In carrying out this program, already so vast, we
invite the friendly cooperation of the Socialists. We

390

SOCIALIST PROGRAMS AND THE FACTS

ask them, however, not to forget our prior claim to
the idea that all property belongs to the public." A
highly imprudent addition. It would have been im-
possible for M. Lafiferre to prove such a statement,
while the Socialists would not have had the smallest
difficulty in demonstrating that the Belgians, Colins
and Cesar de Paepe, and the French Benoit Malon
and Paul Brousse were the true founders of Municipal
Socialism and the forerunners of the Fabians.

During the Socialist Congress at St. Quentin in
April, 1911, M. Edgard Milhaud gave expression to
the theory of the municipalization of service. To
forestall any criticism regarding the meagre results
achieved in the way of relief of taxation, he said :

"The object of municipalizing the forces of production
should not be to reduce taxes, but to reduce the cost of
living."

This statement ought to be kept in mind by those
who cherish the delusion that they can solve the ques-
tion of taxation by establishing state monopolies.

The Congress also passed two resolutions, one in
favor of the purchase of the railways, the other in
favor of municipal operation.

"Municipal services ought to be established in the
first place for the advantage of the laboring people and
the poor, for whom they ought to be provided at cost
price if remunerative. And, if they yield profits through
their use by other classes of the population, these profits
ought to be utilized to extend municipal services in the
labor interest, and, above all, to create and develop gratui-

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

tous education, sanitation, insurance, organized charity,
and food."

Then in order that there should be no doubt as to
the character of these claims it was added :

"By their municipal action, by increasing the guaranties
of prosperity, liberty and the fighting chances of the pro-
letariat. Socialists can add to the force of their claims as
well as of the fight against capitalism and middle class
political conservatism."

If interventionalists of every species "for their own
reasons" help along the work of the Socialist, it will
not be for lack of warning on the part of the Socialist
party itself. But there are men who have a natural
aptitude for and take pride in allowing themselves to
be made dupes.

5. In August, 1911, the cost of living in France
reached a crisis. Trouble broke out in the North,^ and
the Caillaux ministry found nothing better to do than
to offer to the women and men who found bread, meat,
milk, and vegetables too high this poultice:

"Municipalities may be authorized by a decree of the
Council of State either to assist by loans in the creation
of cooperative societies for the establishment of bakeries
and butcher shops, or to establish themselves, and cause
to be publicly operated, bakeries and butcher shops, under
the conditions prescribed." ^

' See E. Watelet, Les Recents Troubles du Nord de la France,
1912.

''Discussion de la Societe d'Economie Politique, Journal des
Economistes, December, 1911.

392

SOCIALIST PROGRAMS AND THE FACTS

This brilliant plan received such an enthusiastic wel-
come that the Poincare ministry speedily withdrew it.

The Council of State has now accepted the principle
that economic action on the part of a municipality is
illegal when it results in willful and systematic restraint
of commerce and industry. It has made some allow-
ances in special cases, but we hope that in the future
it will adhere firmly to the principle.

393

CHAPTER II

BLUFF

Declarations of Edgard Milhaud. — Enumeration. — Govern-
ment and Municipal Undertakings Are Traditions, Not
Innovations. — Far from Being Proofs of Evolution,
They Are Proofs of Retrogression. — Example: Ger-
many. — Postoffice. — Forests. — Gobelin Tapestry and
Sevres China. — The Legitimate Share of Government
and Municipality in General Economic Activity.

In November, 191 1, Edgard Milhaud, editor of the
Annales de la Regie Directe, declared in that publica-
tion:

"Operation by public groups — that is to say, govern-
ment ownership — is being substituted more and more
for operation by individuals or by private corporations.
In the field of municipal operation we might mention
water supply, gas, electricity, tramways, highways, sew-
age disposal, sanitation, undertaking, crematories, mar-
kets, department stores, savings banks, pawnshops,
weights and measures, employment offices, real estate of-
fices, cheap lodgings, slaughter houses, public baths, grain
elevators, fish ponds, etc. To-day municipal operation
of water, gas, electricity and tramways forms a total
of 338 undertakingsjp^Switzerland, 569 in Italy, and
1,805 i" the Uniterf^Kinf^om. Water and gas enter-
prises alone reach a totaii of 3,210 in Germany.

'^'" 394

BLUFF

"In the field of state undertakings we would mention
the postal, telegraph and telephone systems, railways,
canals, insurance, title guaranty and trust companies,
banks of issue, mines, salt works and salt marshes, hydro-
electric power, forests, various manufactures (powder,
munitions of war, matches, tobacco, tapestries, fine porce-
lain, etc.), monopolies of several imports and exports
(the camphor trade with Japan, Colombian emeralds,
etc.). Moreover, one international federation of na-
tional undertakings was established 37 years ago, in 1874.
This is the Universal Postal Union."

M. Milhaud is an exponent of that particular
rhetorical method which consists in producing effects
by piling up words one on top of the other in such a
manner as to give an impression of large quantities
in face of really small ones. If we are to credit his
statement, people far advanced along the path of evo-
lution are finding themselves carried away by an irre-
sistible impulse to substitute public for private under-
takings. Then he enumerates these undertakings for
us.

Now municipal undertakings are by no means novel-
ties; they are traditions, at least in the case of public
roads, sewage disposal, cemeteries, common sewers,
markets, public weights and measures, etc. The aque-
ducts of the Romans prove to us that their water supply
was a municipal affair. Therefore, as novelties, we
have the distribution of gas, electricity and the tram-
ways.

He quotes Germany as having the greatest number
of municipal undertakings. These also are traditions
and not innovations. The case is the same in Switzer-

395

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

land, where the paternal policy of the cantons has never
established a definite limit between what belongs to the
individual and what to the public domain. The num-
ber of local governments in the United Kingdom
which have taken over such enterprises is astonish-
ing; but experience is decidedly against any further
extension of similar activities on the part of munici-
palities. In France, up to the present, and despite
all the allurements of the Socialists, the municipalities
have shown themselves distrustful.

As for national undertakings, Edgard Milhaud
points to the postal, telegraph and telephone services.

The two last mentioned undertakings, except in the
United States, are integral parts of the postal system.
The Assyrians also had a government postal system,
not for the use of the people, but for the service of the
king. A similar institution was established and for
the same purpose by the kings of France and other
sovereigns. It is a government tradition. The ma-
jority of the railway lines still belong to private compa-
nies. As for insurance, there is scarcely one system
under public management outside of the municipal fire
insurance in Germany. Because Prussia is a great
mine owner, it does not follow that that country is
pointing out the future economic course of other peo-
ples. The public forests are a remnant of the feudal
regime.

Tobacco and match monopolies are limited to one or
two countries. The Gobelin tapestry and the Sevres
porcelain are monarchical heirlooms.

In Austria, toward the close of 191 1, a bill for the
nationalization of coal mines was presented. But

396

BLUFF

Superintendent Holmann, representing the govern-
ment, gave it as his opinion that the nationahzation of
Austrian coal mines would require an amount of capi-
tal so extravagant that it would be impossible to pro-
cure it. Moreover, he considered that it would be a
mistake to hope for large results from such nationali-
zation, as it would have all the economic defects and
inconveniences of similar monopolies everywhere. The
project was, therefore, abandoned.

And yet M. Milhaud can say: "The unceasing
march toward nationalization and municipalization is
supported, stimulated and commanded by economic
evolution."

Neither government nor municipal monopolies are
novelties; they are antiques. To represent them in the
light of consequences of modern economic changes is
to commit a solecism. They are not indicative of evo-
lution, but of retrogression.

As a matter of fact, if throughout the world we
compare the economic activity of private undertakings
with those of governments, either local or state, the lat-
ter appear almost insignificant. The 338 Swiss mu-
nicipalities may be each in itself most interesting in its
public economic activities. But Switzerland has only
3,763,000 inhabitants, and the importance of their ac-
tivities is therefore limited.

397

CHAPTER III

RESULTS OF EXPERIENCE

The Meagreness of the Socialist Program. — Those Who
Have Office and Those Who Want It. — The Programs
of Government and Municipal Operation Condemned
by Experience, and from the Double Point of View of
Quality and Cost of Service. — State and Municipal
Ownership Show Incontestable Inferiority. — The Util-
ity and Danger of Such Experiments.

Socialist programs are pitifully meagre. They
would not amount to anything but for the weakness
and hunger for popularity of candidates for office and
the desire of deputies, municipal councillors and
mayors to eliminate their competitors. Political ambi-
tions form the cornerstones of such programs, and, if
officials did not find in them promises of an increase
in power for themselves and of employment for their
sons, sons-in-law and nephews they would vanish in
air.

Against a wider extension of public economic re-
sponsibilities nothing but experience stands in the way.
But it condemns unreservedly any such extension.
From the point of view, both of the quality and of the
cost of service, state and municipal ownership show
incontestable inferiority to private enterprise.

The experiments with State and Municipal Social-

398

RESULTS OF EXPERIENCfi

ism have resulted so disastrously that their opponents
might even see an advantage in hastening and multi-
plying them. Unfortunately human experiments are
not like those of a laboratory. When they occur they
invariabl}' displace and break something. They pro-
voke passions; they create conflicting interests. They
exert material influences which may be ruinous, and
moral influences which can be even more destructive.
After men have become addicted to habits of mendac-
ity and spoliation, it is difficult to teach them not to
look upon the services that they render as pure and
simple sources of remuneration.

399

CHAPTER IV

THE STATE A DISHONEST MAN

I. In Foreign Affairs Machiavelli Is Still Our Moral
Guide. — In Domestic Affairs the End Justifies the
Means for Socialists and Interventionalists. — The
Sovereignty of the "End in View."
2. Bismarck, Ramsay Macdonald and the Railways. — MM.
Pelletan and Waddington.

3. Our Professors of Law, the Heirs of the Lawyers of

Philippe Le Bel. — Partial Confiscation of the Railways.
— Approval of the Principle by Paul Pic.

4. The Agreements of 1883. — The Guaranty of Interest of

the Orleans and Midi Railway Lines and M. Barthou.
— Decree of the Council of State. — The Millerand
Interpellation, 1895. — The Political Crisis. — Govern-
mental Disregard of Judicial Decisions. — Last Re-
source of the Orleans Company. — The Confirmatory
Decree of the Council of State of July 26, 1912. — An-
archistic Lack of Conscience.

5. Giolitti and the Insurance Companies. — National and

International Confiscation. — A Legal Excuse. — M.
Jeze. — "An Administrative and Not a Fiscal Monop-
oly." — A Legal Error. — Precedents for Confiscation.
— Progress Condemns Precedents of Rapine and Vio-
lence. — -Return to Confiscation a Proof of Retrogres-
sion. — Individual Ownership One of the Conditions
of National and International Law. — An Error of
Fact. — Profits of the Italian Monopoly.

6. The Italian Law of 1903. — Repeal of Municipal Con-

cessions. — The Congress of Municipal Undertakings.

400 .

THE STATE A DISHONEST MAN

7. The Rambla Case.

8. Equal Tolls on the Panama Canal.— Article 8 of the

Clayton-Bulwer Treaty. — The Hay-P auncefote
Treaty. — Exemption of American Ships Engaged in
Coast Trade. — The Lodge Bill. — Bad Faith. — A Lob-
byist.— British Protests.- Mr. Taft.— Supreme Court
of the United States. — Under the Circumstances
There Can Be No Third Disinterested Party.

9. The Discomfiture of the New York Street Railways. —

Restrictive Legislation in New Jersey. — Police Power,
Private Property, and Constitutional Guaranties.
10. Examples of a Model Employer.

1. It is still generally understood that in matters of
foreign policy the statesman should have no moral
guide other than Machiavelli. In regard to domestic
affairs the unanimity of opinion is scarcely so perfect.
Nevertheless, statesmen who believe that every govern-
ment ought to be "an honest man" are still the excep-
tion; and not alone Socialists, but also Interventional-
ists are characterized by utter unscrupulousness when
the question arises of substituting collective for indi-
vidual action. The end justifies the means. To objec-
tions made in the name of property rights and of re-
spect for contracts, the end in view is declared sov-
ereign. Let me cite a few characteristic facts in proof
of such a statement.

2. Bismarck organized a campaign against the pri-
vate railway companies, diverted traffic from them,
bought their stock secretly, and molded public opinion
into favoring the purchase he had planned.

The parliamentary chairman of the Labor party in
Great Britain, J. Ramsay Macdonald, in a debate with

401

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

Hilaire Belloc in Memorial Hall, said: "M. Belloc
proposes to take £19,000,000 ($92,530,000) from the
excise duties in order to purchase railways. Railway
stock will immediately rise to a ruinous figure. It
would be better to bring down the value of the stock
by an attack upon their income." ^

Bismarck and Ramsay Macdonald have the same
moral code when it comes to government action.

In France Camille Pelletan has declared that "con-
tracts must be turned topsy turvy" ; and even moderates
like Richard Waddington share his opinion.^

3. Advocates can be found for any cause. It is
therefore not strange that legal experts, descendants
of the lawyers of Philippe Le Bel, maintain that the
government can do anything since it creates the law.
Legalists like R. Jay have even maintained the right
of the state to expropriate private enterprises without
indemnity.

As long as ministers respected the phrase, "an hon-
est government," and were resolved to hold to the con-
tracts by which they were bound to private companies,
they took little interest in the labor question. The
control, organization and remuneration of employees
was regarded as the affair of the companies con-
cerned, and not of the minister.

But in 1897 the Chamber of Deputies passed the
Berteaux-Rabier-Joures bill, modifying the labor con-
ditions of employees and giving to them a legal right

^Labour Leader, May 12, 191 1.
'See Yves Guyot, Les Chemins de Per et la Greve.
402

THE STATE A DISHONEST MAN

to the customary pension after 20 years of service.
From that moment the government found itself de-
fenseless. Since then railway employees have learned
to go to their deputies with their demands. The dep-
uty in his turn will bring all possible influence to bear
upon the government, which, under this pressure, will
tamper with the existing contracts. Yet, despite the
cracks in them, the contracts still hold. Up to the
present the government has not been able to impose
upon private companies the reinstatements of dis-
charged employees to which the state system has been
obliged to submit. This has been the government's
punishment for its lack of respect for a contract.

The rights of the existing private railways in France
have been directly threatened by a bill introduced by
M. Augagneur at the beginning of November, 1912,
and thus worded :

"Article i .—Nomination of each of the following rail-
way officials shall be submitted for ratification to the
minister of Public Works by the chairman of the board
of directors:

"a. Directors, assistant directors.

"b. Chiefs of the administrative, transportation and
supply departments of the road.

"The same rule shall apply to employees carrying on
for the time being the duties of the above-named offi-
cials for a period of not less than three months.

"Nominations shall be made for a period of six years
and shall be renewable.

"Article 2. — All modifications of the administrative
organization of the roads and all changes in the duties of

403

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

the employees mentioned in Article i shall be subject
to the ratification of the minister of Public Works.

"Article 3. — If, after a delay of three months from
the date of the promulgation of the present law, or from
the date of a vacancy in one of the positions mentioned
in Article i, the minister has not been able to ratify
the names proposed by the companies, he shall proceed
with the duty of nomination himself.

"The same rule shall hold if the ratification of the
names proposed by the companies has not been made
within three months preceding the normal end of the
term of office of the employees mentioned in Article i.

"Article 4. — After a delay of six months from the
date of the promulgation of the present law, the com-
panies shall present for the approval of the minister
of Public Works:

"i. The regulations governing the administrative or-
ganization of each line ;

"2. The regulations governing the methods of recruit-
ing and promotion, as well as the salary list, of em-
ployees ;

"3. The regulations governing organization and
methods of procedure of the councils of discipline and
the commissions on reforms.

"All modifications of the regulations so approved must
likewise be ratified.

"In any case where the ratification above provided for
is accorded only after reservations involving modifica-
tions or additions not accepted by the company, the
question shall be decided by a decree of the Council of
State.

"Infractions of the present law shall be prosecuted
404 '

THE STATE A DISHONEST MAN

and punished in conformity with the provisions of Sec-
tion III of the Ordinance of November 15, 1846."

The above plan of partial confiscation is a bold vio-
lation of the contracts between the government and
the companies. Nevertheless, Paul Pic, professor of
industrial law at Lyon, does not hesitate to declare
that "this measure is in itself perfectly justifiable."
As, however, "it would run the risk of leading us into
a precipitate purchase of all the lines, as well as on
account of the strenuous resistance of the companies,"
he advises a delay. ^

4. Few ministers have any desire to adhere loyally
to the contracts of 1883 with the railway companies.
In 1894 M. Barthou, then minister of Public Works,
on the occasion of a bond issue by the Orleans line,
ordered the company to add to the notices relative to
the guaranty of interest an announcement that this
guaranty would expire in 1914. The company re-
ferred the question to the Council of State, holding
that the government had granted this guaranty not
only up to 1914, but to the expiration of its franchise,
in 1956. By a decree of January 11, 1895, based on
opinions rendered by M. Mayliel and M. Jagerschmidt,
the council of state handed down a decision in favor
of the company.

We give the final summing up and the provisions
of this decree of 1895 :

"Under the circumstances, it must be acknowledged
that the guaranty of the railway company from Paris to

^ Les Grandes Regies d'Stat, by Paul Pic, Revue d'Economie
Politique, July-August, 1912.

405

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

Orleans has a period to run equal to that of its fran-
chise, and that, by requesting the company to specify
upon its bonds that this guaranty will end on December
31, 1914, the minister of Public Works has misinterpreted
the rights of the company arising from the contract of
June 28, 1883. It is decided, therefore, that the order
of the minister directing the company to add to its
notices relative to the guaranty of bonds an announce-
ment that this guaranty will expire December 31, 1914,
be annulled."

Instead of submitting gracefully to this decree, M.
Barthou handed in his resignation as minister of Pub-
lic Works. On January 14, M. Millerand called Min-
ister Dupuy to account as having failed in his duty in
not enforcing the ministerial order, and ultimately the
Dupuy ministry fell because it refused to disobey the
decree of the Council of State even at the urgent de-
mand of its party. Thus the Council of State over-
threw a minister and afterward a ministry, while the
affair led further to the resignation of Casimir Perier,
President of the Republic.

The Chamber of Deputies, in order to appear to be
doing something, appointed a commission charged
with discovering whether there was any cause for the
prosecution of M. Raynal, who, as minister of Public
Works in 1883, had signed the original railway con-
tracts, for high crimes and misdemeanors committed
during his term of public office. In conformity with
the unanimous opinion of the members of the commis-
sion, M. Raynal was not prosecuted.

Despite the definite character of the decree of 1895,
the ministry of Public Works, in an official publication

406

THE STATE A DISHONEST MAN

of the Statistique des Chemins de Fer Frangais, sub-
division 9, bearing the title, Conditions Principales
des Concessions, has continued to declare that the guar-
anty period of the Orleans and the Midi companies
would expire December 31, 1914.

On March 16, in the Chamber, Maurice Sibille hav-
ing referred to the claim of the government that the
guaranty would expire December 31, 19 14, the minis-
ter of Finance exclaimed : "There is no question about
it." Thus we see the ministry testifying to its exalted
respect for the decision of the Council of State.

In the belief, however, that the question had been
settled by the decree of 1895, ^^^ wishing to avoid any
misundertanding as to its credit, the Orleans company
demanded from the minister authority to publish upon
its bonds a notice indicating that the guaranty would
expire only with the franchise in 1956. Upon the re-
fusal of the minister, the case went back again to
the Council of State, which, by a decree rendered
July 26, 1912, decided, as in its previous decree of
1895, in favor of the company.

The position finally taken by the ministry was that
litigation could not be considered as existing in fact
until 1914, the year which, according to the govern-
ment, would see the end of the guaranty.

5. In Italy, as we have already seen,^ M. Giolitti
was anxious to follow the example of Germany,
France and Great Britain in estabHshing old-age pen-
sions. But where should he find the resources ? Noth-
ing simpler. The insurance companies were earning

' See above, Book I, Chapter 23.
407

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

dividends. The state must force them out and sub-
stitute itself for them.

While shrewd Socialists were disputing whether
the various phases of expropriation should be brought
about with or without indemnity, M. Giolitti decided
the question: No indemnity for existing insurance
companies. The Italian companies were forced to bow
before the "mightier than thou" of the government.

But it was quite another matter in the case o'f the
foreign insurance companies. The Italian govern-
ment, however, remained deaf to the protests of the
English, French and German governments.

This abuse of power, as a preliminary to the insur-
ance law, inspires no great confidence in the govern-
ment's respect for acquired rights. Moreover, why
should this respect be any greater with regard to those
who insure themselves with the state ? The seizure by
the French government of the funds of the "Invali-
des" ^ is notorious. Undoubtedly the major part of
the returns from the monopoly will go into the coffers
of the Italian government.

The Italian government refused all compensation
to foreign companies, judging — and rightly — that
their several governments would not go to war over
so small a question and that, consequently, it need take
no account of protests nor admit of any international
jurisdiction. Thus its Socialist character is given the
final touch and proof is given thereby that expropria-
tion without indemnity may be not only national but
international.

According to M. Jeze, professor of financial law in

'A navy relief fund.

408

THE STATE A DISHONEST MAN

the University of Paris, if the affair had been
brought before the tribunal at The Hague, Italy "could
claim that the monopoly so constituted is an adminis-
trative, and not a fiscal monopoly, as an excuse for not
having paid an indemnity."

I respect M. Jeze's opinion. But from the point of
view of the wrong done me by the state, what differ-
ence does it make what excuse the state offers me?
According to the premise of M. Jeze, the state would
have the right to confiscate anything from which it
could draw a profit. The state could seize my meadow
to set up target practice without paying me anything.
Article 545 of the Civil Code says: "No one can be
compelled to give up his property except in behalf of
the public interest after a just compensation has been
paid." Business, the foundation of commerce, con-
stitutes property as certainly as real estate. The state
has no more right to confiscate the one than the other
under any system which rests on respect for private
property.

M. Jeze relies for a precedent on the prohibition of
the use of white lead, which resulted from a serious
agitation on the part of a number of competitors con-
ducted by a member of the Labor Confederation. The
whole matter proved nothing but the shameful cow-
ardice of the French Parliament.^ The prohibition of
the use of white phosphorus in the manufacture of
matches is based on a foolish prejudice contradicted by
the facts. As for the prohibition of the sale of ab-
sinthe, it must be acknowledged that that one act on

' Yves Guyot, La CSruse et la Methode Experimentale. Bro-
chure, Paris, F. Alcan.

409

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

the part of the state does constitute a precedent in fa-
vor of the arguments of M. Jeze; but human progress
in all the epochs of history condemns precedents of
rapine and violence committed by governments against
individuals. A return to the mediaeval customs of con-
fiscation can indicate nothing but retrogression.

M. Jeze is right in thinking that the limitation of
hours and working days, as well as the minimum
wage, are partial confiscation. But he is also present-
ing a formidable argument against all legislation called
social, which is, in fact, only a step toward the sup-
pression of individual property and the introduction
of Socialism. Our codes are still founded on respect
for personal property, however, and he acknowledges
that such respect is one of the indispensable conditions
of international law.

Therefore the Italian government has been guilty
of an abuse of power in confiscating the business of
life insurance companies ; and, in the case of the for-
eign companies, at least, it owes them some reparation.

The argument that the Italian government did not
expect to draw any profit from the insurance monop-
oly is inaccurate. If there had been no hope of reap-
ing any profit the monopoly would never have been
created.

Article 14 of the law provides that there shall be
taken out of the net annual profits : (a) A sum of at
least I per cent., which shall be devoted to the ordi-
nary reserve; (b) a sum to be applied, in conformity
with the statutes, to the guaranty reserve and any other
contingent reserve; (c) a sum to be assigned to the
administrative, technical, and soliciting staff of the

410 *

THE STATE A DISHONEST MAN

Fund. This sum shall be less than 5 per cent. The
remainder of the profits will be paid into the National
Insurance reserve for invalid and aged workingmen.
The profits of the National Fund are to be exempt
from the income tax.

Thus the law indicates in every line that the mo-
nopoly is expected to be profitable. Not only does it
dispose of these profits but it exempts them from
taxation.

In the Bulletin de I'Institute International d' Agri-
culture, edited in part under the direction of the minis-
try of Agriculture, I find an article which proclaims
the new law to the world in the following phrases :

"The ultimate purpose of the new law is to create
another source of revenue for the government by the
monopoly on life insurance." (May, 1912, page 51.)

In the light of these excerpts, what becomes of the
argument of M. Jeze, based on the disinterested aims
of the life insurance monopoly?

The same article also contains the statement that
the law is designed "especially to devote the profits
arising from this monopoly" to the insurance fund for
pensions.

M. Jeze has set down an error of fact in order to
justify a legal theory based on nothing but a casuist's
distinction.

6. The law of March 29, 1903, gives to the Italian
local governments authority to buy up franchises what-
ever may be the time they have still to run. M. Gio-
litti, the author of the law, said: "This is not a ques-

411

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

tion of expropriation, nor of lease, but a question of
the repeal of a franchise in the public interest: and
this difference permits us to be more liberal toward
the municipality which makes use of its full right of
appeal."

What is this right of appeal, except the breaking of
a contract by one of the parties to it? And because
it suits the convenience of this party to break the con-
tract, it is necessary "to be very liberal with it." What
are the guaranties of the other party?

Article 21 declares that the right of repeal exists
after a third of the period of the full duration of the
franchise may have elapsed ; in any case, after 20 years,
but never before. The article adds that municipalities
must pay an equitable indemnity in which the follow-
ing items shall be taken into account :

First : The value of the installation and its equip-
ment. Second : Advances and subsidies paid on pre-
miums by the municipality. Third : Loss of profits re-
duced to the present value (at the legal rate of inter-
est) of annual sums equal to the average of the profits
for the five years last past for as many years as the con-
cession has still to run, the number of years, neverthe-
less, not to be more than twenty — the amount of these
annual sums to be based on the average of the net rev-
enues reported in the personal property tax declara-
tions, omitting the years of maximum and minimum
profits and deducting interest on capital.

At the first congress of Italian municipal undertak-
ings a lawyer, David Ferrari, protested in a long re-
port against the third paragraph of the article above
quoted, which he declared opposed to the spirit of the

412

THE STATE A DISHONEST MAN

law. The profit arises from the concession. When the
concession ceases so does the profit. Therefore, the
"basis of the accumulation of surplus profits by reason
of the duration of the concession" ought to be struck
out. Another lawyer, Mario Cattaneo, was astonished
"that on the sole ground that one of the parties was a
public body such an attack could be made on the doc-
trine of the inviolability of private property." He de-
manded, therefore, that "respect be shown in the case
of existing contracts to all the rules of private law,"
and that the bill be applied to future contracts only.
The congress adopted unanimously the conclusion of
the Ferrari report, demanding that "the basis of the
accumulation of surplus profit by reason of the dura-
tion of the franchise" be omitted.

During the second congress, held in Rome in June,
191 1, Giovanni Montemartini, attached to the mayor-
alty of Rome, insisted upon the necessity of still fur-
ther modifying the law of 1903.

7. Here we have a new example of government mo-
rale:

The president of Uruguay, M. Battle y Ordonez,
a partisan of the extension of state activities, desired
to establish a national bank. Then, in order to give
his bank the credit indispensable to institutions of simi-
lar character, he proceeded to teach everybody what
fools they would be to trust to contracts entered into
with Uruguay by giving them an object lesson in the
so-called "Rambla affair."

Now a tyrant can do many things — anything he
may choose, if you will. But a state, however tyran-

413

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

nical it may be in spirit, may come in contact with one
insurmountable obstacle. Confidence cannot be forced.

The trouble which has arisen between the Rambla
Company and the government of Uruguay has served
to prove that the latter has either never heard of or
never pondered the precept of M. Thiers : "The
state must act like an honest man."

In June, 191 3, the Matin published an account of
the Rambla affair, which I summarize:

In 1910 an Anglo-French association, known as the
Rambla Company, had renewed a franchise and a con-
tract dating from 1899. Its object was the acquisition
of 145 hectares (358 acres) close to the sea for the
construction of a public promenade (Rambla).

Of the 42,500,000 francs which the work was to
require, 35,000,000 francs was guaranteed, capital and
interest, by the state of Uruguay.

There appeared to be entire harmony among the
parties to the affair ; yet, at the last moment, the Uru-
guayan government refused to sign the contract unless
an article (No. 3), containing an acknowledgment on
the part of the company of the right of the state to in-
troduce such modifications into the plans as it should
deem fitting were inserted.

That the company was imprudent enough to con-
sent to this clause has never been denied; but it had
this excuse at least. It trusted the state to act like
an honest man.

The utter lack of any basis for such confidence was
almost immediately proved when the state issued a
decree adding to the specifications the taking over by
the company of 137 hectares (338 acres) facing the

414

THE STATE A DISHONEST MANf

sea, 80 hectares ( 198 acres) of which it put up for sale.
The minister of PubHc Works called this a slight modi-
fication.

The company has determined to resist the demands
of the government of Uruguay, and has claimed the in-
tervention of the English and French governments.
These governments can, of course, enter remon-
strances, but it would be a mistake to hope for much
effect from them.

The party most interested in not violating its con-
tract would seem to be Uruguay, for the principal
guaranty that foreign creditors or parties to contracts
with the state have is the self-interest of every gov-
ernment in not ruining its own credit.

8. The United States has always considered that a
canal between the Atlantic and Pacific oceans was
among the probabilities of the future. In 1835 the
Senate ordered the President to open negotiations with
the governments of other nations, and more especially
with those of Central America and New Granada, with
the object of giving efficient protection to the promo-
ters of such a canal.

A similar resolution was adopted by the House of
Representatives, in 1839, following a petition from the
merchants of New York and Philadelphia. In 1849
ratifications of a treaty between the United States and
the Republic of New Granada, subsequently and suc-
cessively known as the United States of Colombia and
the Republic of Colombia, were exchanged, of which
the principal provision was the guaranty of the neu-
trality of the Panama Canal.

415

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

April 19, 1850, John M. Clayton, secretary of state,
and Sir Henry Bulwer-Lytton, British minister to
Washington, signed the treaty relative to the canal that
an American company had undertaken to construct by
making use of the St. John River of Nicaragua. This
treaty specified that the United States should act as a
trustee for the other nations, but that all the nations
should have the same privileges in the use of the canal.
In transmitting this treaty to the Senate President Polk
emphasized the provision for equal rights, assured by
Article 8 of the treaty.

This Article 8 was again expressly endorsed in the
declaration preceding the Hay-Pauncefote treaty, con-
cluded on November 18, 1901, when the American gov-
ernment took over the completion of the Panama Canal.
Moreover, it had been previously confirmed by the
declaration of President Cleveland, in his message of
1885:

"Any passage of communication between the two
oceans ought to redound to the advantage of the entire
world for the benefit of humanity. It ought to be re-
moved from all risks of domination by a single power.
It ought never to become an occasion for hostility or the
prize of warring ambitions."

Nowhere, in the various diplomatic acts of the Uni-
ted States can there be found any reserve in favor of
special advantages for certain ships of certain nations.
Nevertheless, in the House of Representatives and in
the Senate of the United States, in the summer of
19 12, various proposals were discussed looking to the

416 •

THE STATE A DISHONEST MAN

exemption of American ships from the tolls which
must be paid by the ships of other nations.

Finally the House of Representatives adopted a
resolution declaring that no toll should be levied upon
American ships engaged in the coasting trade. Later
another clause was introduced into the bill providing
"that no toll shall be levied upon American ships,
which, while engaged in the transport of merchandise,
can be requisitioned by the President, with the consent
of the owners, in case of war or public need." Sena-
tor Lodge, in the month of December, 191 1, had sug-
gested even more skilful tactics: American ships
passing through the canal should indeed pay duties;
thus the Hay-Pauncefote treaty would be respected to
the letter. But the United States should reimburse
these ships at the public expense. For a long time the
protectionists had been demanding subsidies for the
United States merchant marine. The occasion was,
therefore, too good to be lost. The other nations could
scarcely protest against a granting of subsidies to her
merchant marine by the United States.

"All these schemes to escape the obligations of the
treaty," says the New York Journal of Commerce,
"will be considered as acts of bad faith. The cam-
paign for the violation of the Hay-Pauncefote treaty
has been engineered by a lobbyist, who receives a salary
of $25,000 a year, and unlimited credit with the mem-
bers of Congress."

In order to justify them appeal has been made to the
Monroe Doctrine, but Monroe never dreamed that the
doctrine bearing his name would ever be given such
a broad construction.

417

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

The bill, as finally passed by the House of Represen-
tatives, extended that provision of the Interstate Com-
merce Act which forbids any railway company to have
an interest in "any method of water transportation"
which "is or can be a competitor." However, the Sen-
ate justly decided that there was no analogy, and
therefore substituted for that particular clause the fol-
lowing provision : "No ship possessed or controlled by
a railway, or in which a railway may have any in-
terest, will be admitted into the canal, if it is engaged in
the United States coast trade."

On the strength of the Hay-Pauncefote treaty
Great Britain addressed a protest to the United States
government. The Secretary of State, Mr. Knox,
transmitted it to the senate :

"According to the document in question, the govern-
ment of his Britannic Majesty is of opinion that the
act exempting the American merchant marine from the
payment of duty would constitute an infraction of the
Treaty, and that, if the duties were only collected in
order to be immediately refunded, the principle would be
the same as though these duties were altogether abol-
ished.

"The opinion is also expressed in this document that
to collect duties in order to refund them immediately,
although not contrary to the letter of the Treaty, would
be in opposition to its spirit. It is admitted that there is
nothing in the Hay-Pauncefote Treaty which prevents
the United States from subsidizing its merchant marine,
but it is claimed that a great difference exists between
a general subsidy of the entire merchant marine and that
of a part only, engaged in a special branch of the service,
and a proportional subsidy reckoned according to the

418

THE STATE A DISHONEST MAN

frequency of the passages through the canal of the ships
so subsidized.

"Such a subsidy could not, in the opinion of the gov-
ernment of his Britannic Majesty, be in conformity with
the obligations of the Treaty.

"In so far as the bill exempting the ships engaged in
the coasting trade is concerned, the document declares
that no objection would be made if navigation were
organized in such fashion that only those ships actually
devoted to the coasting trade reserved for American
ships would benefit by this exemption. It appears, never-
theless, that the government of his Majesty considers
as impossible the establishment of regulations tending
to discriminate between coastwise and other American
ships ; consequently this exemption would be an infrac-
tion of the Treaty."

The United States Senate voted, by a large majority,
August 8, 1912, in favor of the clause exempting the
ships of the United States engaged in the coasting
trade from all tolls.

Moreover, the majority which voted for the viola-
tion of the Hay-Pauncefote Treaty declared that it
would refuse to submit the question of treaty violation
to arbitration. Its members declared that "this ques-
tion is not a diplomatic one," under the pretext that
the exemption concerned only American ships engaged
in the coasting trade; and that it was, therefore, a
question of a domestic nature, of no interest to any
foreign power, and, consequently, does not come under
the jurisdiction of The Hague tribunal. It is easy to
understand why the majority of the senators waived
arbitration in this connection. The United States

419

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

would have found itself alone on the one side and all
the rest of the world on the other.

The whole situation has been summed up in the
clearest possible manner by Senators Root of New
York, Burton of Ohio, and McCumber of North Da-
kota, all of whom made the antithesis perfectly clear :
After having accepted every advantage of the Hay-
Pauncefote treaty, the United States refuses to accept
any of its responsibilities.

But Senators Cummins, Works, and Chamberlain
answered without the smallest attempt at a hypocriti-
cal softening of their argument: — "The Hay-Paunce-
fote treaty has done nothing for us, and, as it is in our
way, there is nothing to do but to break it."

The Evening Post, of New York, was entirely right
in saying: "The vote of the Senate does a greater in-
jury to the United States than that which would have
resulted from a naval defeat in the waters of Colom-
bia." It is true that it is only a moral defeat; and un-
scrupulous Machiavellis will never be able to under-
stand the harm that a defeat of this nature can bring
to their country because, as a general rule, the conse-
quences are not felt until a long time afterward.

This was the time for Mr. Taft to show himself a
great statesman. But the dispatches immediately an-
nounced that, if the Senate and the House of Represen-
tatives were in accord, he would sign the bill while
recognizing the right of foreign states to appeal to
the Supreme Court of the United States.

It is now announced that Mr. Wilson will not follow
the example of his predecessor. We must give him
credit for that.

420

THE STATE A DISHONEST MAN

I have the utmost respect for the Supreme Court/
but this Supreme Court is composed of nine American
judges, sitting in America, and, in this particular case,
its judgment must necessarily be tinged, and very
strongly, with an excusable bias. It forms a part of
one of the parties to the issue, and it cannot be con-
sidered as a disinterested third party.

It is true, and this is the weakness of The Hague
tribunal in regard to this question, that there is no dis-
interested third party, because all the nations have an
interest opposed to that of the United States. And
we must admit also that, from the point of view
of domestic policy, the political bodies of the various
states have not always shown themselves more scru-
pulous.

9. In a protest, addressed to a committee of the
State Senate, Frank Bergen, general counsel for the
Public Service Corporation of New Jersey, accuses the
partisans of the municipalization of the street railways
of New York "of being delighted with their (viz., the
Public Service Corporation's) discomfiture" brought
about by laws passed to obtain just such a result.
Private enterprises having developed to an enormous
proportion the state property of New Jersey, from
1870 to 1906, members of the State Senate felt that the
moment had come to confiscate them. Toward this end
Senator Hunderton proposed Amendment 64 to the
Crimes Act, drawn up in such a manner "that inno-

' See Les Principes de '89 et le Socialisme. La Democratic
Individualiste.

421

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

cence no longer constitutes a defense against a crimi-
nal accusation." ^

Justice Brewer, of the Supreme Court of the United
States, has declared :

"The police power has become the refuge of every
serious attack against private property. Every unjusti-
fiable charge from the point of view of eminent domain,
or from the fiscal point of view, shelters itself behind
the excuse of police power; but the police power cannot
escape from the constitutional guaranties of private
property."

Hygiene, sanitation, "the conservation of the race,"
etc., are only new forms of the cry of salus populi
which has served to justify all the tyrannies of the ages.

lo. The "model employer" furnishes some very bad
examples. Those who speak in its name can preach
economy to individuals ; but they cannot hold it up
as a model, because it is wasteful and runs into debt.
Its partisans can preach economic morality to indi-
viduals; but they cannot illustrate their texts by ap-
pealing to state morality, because the state too often
"acts like a dishonest man," not only in foreign affairs,
but even in domestic afifairs.

' Annals of the American Academy of Political and Social
Science, May, 1908. Legislative Restriction in New York, page
134-

422

CHAPTER V

CORRUPTION

Multiplication of Opportunities for Corruption. — The Ger-
man Railways. — Mr. Seddon on New Zealand. — Taussig.
— Dangers of Public Enterprises in a Democracy. —
Ring Leaders. — Importance of Their Role. — The Way
to Succeed.

The more governments and municipalities increase
their functions and interfere with the economic life
of the group the more the opportunities for corruption
will multiply.

M. de Miquel, Prussian minister of Finance, who
was compelled to hand in his resignation after the
failure of the Imperial Canal projects, declared some
time afterward :

"If the separate government railways become the prop-
erty of the Empire, the Reichstag will claim the right of
establishing and revising railway rates. The day on
which it obtains this right will see the beginning of cor-
ruption on a grand scale in the German elections. Al-
ready the temper of a large number of the electors is
such that they are sending to the Reichstag many repre-
sentatives who never ask how any given measure will
serve the interest of the nation at large, but simply how
it is going to be regarded by their local constituents.
The concession to the Reichstag of the right to fix the

423

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

railway rates would be as disastrous for our whole po-
litical life as for the economic development of Ger-
many.'"

In their book on New Zealand Le Rossignol and
Stewart say:

"He (the Right Hon. R. J. Seddon) taught the people
in every part of the colony to 'stand in' with the govern-
ment if they wished to be remembered in the distribution
of the loaves and fishes."

Thanks to this practice, Mr. Seddon himself man-
aged to remain at the head of afifairs for a very long
time.

Concerning the administration by the state or mu-
nicipalities of "public service industries," F. W. Taus-
sig ^ observes that the title is applied to certain enter-
prises only, as railways, telephones and telegraph,
water, gas and electricity. In the very beginning, in
the United States, competing private enterprises had
invariably provided these services. Little by little, by
virtue of the law of increase of returns, these enter-
prises united.

Here we meet again the third incentive of all human
action. "For all except the very few of extraordinary
gifts, the spur of gain is not only powerful, it is indis-
pensable." Progress in industry is largely due to in-
ventors and administrators, but the venturesome capi-
talist, ready and eager to risk his wealth in new ways,

' See the discussion relating to the Prussian railways in the
series of volumes, Le Marche Financier, by Arthur Raffalovich.
'Principles of Economics.

424

CORRUPTION

is equally necessary. We owe little thanks to any state
that the world has been transformed through the rail-
ways, steam navigation, the industrial use of steam,
etc. This transformation has been brought about by
individuals. "Electric traction was easily started in
England as a public business, after private enterprise
in the United States had shown how the thing could
be done."

The transmission and distribution of hydraulic and
electric power call for an amount of enterprise and
vigor which public officials are not at all likely to
supply. However, Mr. Taussig would suggest that
such resources should never be given in perpetuity by
the public. There should be no unlimited franchises.

Mr. Taussig speaks as follows of the qualities de-
manded of administrators of undertakings in a democ-
racy, and he is full of misgivings as to the corrupting
power of such undertakings :

"It is often said that corruption in our municipal and
state affairs is caused by private ownership of the great
monopoly enterprises, and that public ownership is the
cure. To reason so is to mistake the occasion for the
cause. The occasion is the great fund of gain which
the monopoly enterprises can yield ; the cause is political
demoralization. It matters little whether the initiative
in corrupt ways is taken by the heads of the monopoly
corporations or by the public officials — whether the first
step be bribery or blackmail. In either case it is the
existence of venal legislators and administrators that
brings coarse and characterless persons into the manage-
ment of the 'public service' industries. Honorable men
withdraw from the unsavory affairs and are replaced by
those less squeamish. The root of the difficulty is that

425

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

a bad political situation invites corruption, not that cor-
ruption makes the political situation bad."

The true way to abolish corruption is to suppress
the opportunity for corruption. But the more govern-
ment and municipal undertakings increase in number
and in importance, the more these opportunities will
multiply.

Government undertakings are a terrible source of
temptation to the ring-leaders among their employees.
They know that fear has a value, and they become
exploiters of the fears of their superiors, the deputies
and the ministers. And, although all their plans may
not succeed, it is more than enough that any of these
demagogues have obtained avowed advantages. Others
have obtained secret advantages.

The employees of the navy yards and of the city
halls gaze with admiration at a man like M. Goude,
and more than one young clerk of the navy department
is saying to himself :

"That is the way to succeed. Let us imitate him."

426

CHAPTER VI

NATIONALIZATION OF PUBUC UTILITIES AND
THE FOUNDATION OF GREAT FORTUNES

New Zealand. — Australia. — Great Fortunes

In a lecture, delivered on December 15, 1910, be-
fore the Fabian Society, G. Bernard Shaw gives the
following definition of Socialism :

"A state of society in which the income of the country
shall be divided equally among the inhabitants without
regard to their character, their industry or any other
consideration except the fact that they are human be-
ings."

The partisans of public ownership hold that the real-
ization of such a conception would be a step toward
the millennium.

They cheerfully declare that New Zealand contains
neither paupers nor millionaires. Now, among the
New Zealanders who have recently died, Jacob Joseph
left a fortune of £300,000 ($1,461,000) ; that of Arch-
deacon Williams amounted to £420,000 ($2,045,400) ;
that of the Hon. W. W. Johnston to about £500,000
($2,435,000). According to an estimate, based on a
comparison of inheritances, Le Rossignol and Stewart
calculate that one-half of one per cent, of all the fam-

427

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

ilies, each family being reckoned as having five mem-
bers, possesses 33 per cent, of the total wealth of New
Zealand. And, despite the growing tax upon land,
and the division of great estates, this inequality is
increasing.-*^

In Australia the wealth is very unequally distributed.
In New South Wales 1,000 individuals, representing
0.40 per cent, of the population, possess £130,000,000
($633,000,000), or, in other words, an average to each
individual of £130,000 ($633,000), while the sum of
their total fortunes amounts to 35 per cent, of the
whole private wealth of the state. In 1904- 190 5 the
half of all the private property of the state belonged
to 3,000 people at most.^

Able men make great fortunes in these countries as
other able men have made them in Turkey and in
Russia.

^ State Socialism in New Zealand, page 299.
' The Official Year Book of New South Wales, 1904-1905, page
543.

428

CHAPTER VII

DISINTEGRATING CHARACTER OF PUBLIC
OPERATION

1. Individuals Are Industrious and Economical; Adminis-

trative and Political Groups Are Wasteful and Ex-
travagant. — Public Ownership Means a Topsy-Turvy
World. — Changing Human Nature.

2. Contradictions Inherent in Public Operation. — Tax-Pay-

ers and Consumers. — Customs Duties in Switzerland. —
Payment in Kind and the Raising of Salaries. — De-
pressing Effect of Public Operation. — Public Operation
One Factor in the Problem of Unemployment.

3. Claude MuUins and Municipal Operation. — The Electors

of To-day Are the Candidates of To-morrow. — Public
Administrators the Slaves of the Employees Whom
They Ought to Control. — Emphasis Not on Service,
but on Political Effect.

4. Monarchical Conceptions of the Socialists. — Transforma-

tion of a Republican State into a Beneficent King. —
Delusion of M. Fourniere. — The Necessity of the Sub-
ordination of the Individual According to Philip Snow-
don.

5. The Budget a Socialist Curb. — But the Socialists Con-

sider Taxation an Instrument of Confiscation. — Sidney
Webb on the Housing of Workmen and Ownership of
the Soil.

6. Crisis of Parliamentarianism. — Necessity of Concentrat-

ing the Action of the State upon Fundamentals. — Se-
curity at Home and Abroad. — The Interference of
Government in the Economic Activity of the Nation
Means Disintegration of the State.
429

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

7. Resistance. — Declarations of the Swiss Federal Council.

— M. Brouilhet and Public Opinion in France.

8. Conclusions.

I. Individuals are industrious, productive and eco-
nomical; administrative and political groups, both na-
tional and municipal, are wasteful and run the tax-
payers into debt.

The ingenious casuist turns this statement about and
says: "In the future, municipalities and states will
produce and economize while individuals who have
worked will rest. He who has produced shall con-
sume; he who has economized will no longer need to
take that trouble." A truly topsy-turvy world that
would be!

However, to the objections to which such a con-
ception gives rise the. reply is invariably : "A Socialist
society will change human nature."

If past experiments are mentioned, your Socialist
replies : "Those experiments have been tried in a capi-
talist society and consequently do not count."

In general those who are advocating most vehe-
mently the nationalization and municipalization of all
public utilities treat the officials who direct and govern
them, whoever they may be, with the utmost scorn.
If the Socialist could only put himself and his fellows
in the high places of the government there would be
nothing left to wish for.

2. Yet certain difficulties are insurmountable, even to
a Socialist. When a political group exploits a utility,
if there is any profit arising from the enterprise, it is
made at the expense of the consumer; or, if there is

430

CHARACTER OF PUBLIC OPERATION

any advantage in it for the consumer, the taxpayers
pay the piper.

In either case the minority is favored at the expense
of the majority. In fact, every government operation
ends in contradictions, similar to the one pointed out
by M. Favarger ^ apropos of the Swiss railways :

"Through its customs duties the Federal Council raises
the cost of living; then, in order to make it possible for
government officials to support the heavier burden, it
raises their salaries."

I have pointed out the depressing effect produced on
industry at large by any threat of government or mu-
nicipal operation. Private effort finds the struggle dif-
ficult, if not impossible, against competitors who may
not only bring politics to bear, but who may even make
use of the courts upon occasion. For no one is natur-
ally predisposed to invest capital in an undertaking
from which he may be driven out at any moment by
government or municipal competition.

Consequently every threat of socialization or munici-
palization is followed by loss of energy in establishing
or carrying on business, as well as by tightness in the
money market. Then these, in their turn, become im-
portant factors in the problem of unemployment.

3. Claude W. MuUins, in his article upon "The Mu-
nicipal Activity of London," ^ sheds great light on
the disturbing character of municipal trading opera-
tions.

^ Journal des Sconomistes, December, 1910.

'Revue Economique Internationale, see above.

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

"All questions become electoral questions, and this very
real danger assumes a more threatening aspect when
we consider the large number of employees connected
with undertakings like the tramway service or water
works. Municipal councillors are employers and candi-
dates in one and the same person, a state of affairs carry-
ing with it a serious menace to the future stability of any
state.

"A president or member of a municipal committee is
interested in the success of an enterprise both as a simple
citizen and as a representative of his constituents."

Officials are not judged according to services ren-
dered, but according to the effect produced by a "dilet-
tante administration." The elector of one day may
well be the candidate of the next; and, if his election
depends upon employees in the government or munici-
pal service, he will be at their beck and call, nor will
he hesitate before any sacrifice of principle.

4. The Socialists look upon themselves as republi-
cans in France, as in New Zealand. In reality they are
monarchists, who, being at the family stage of civiliza-
tion/ consider themselves as helpless dependents, and
therefore long to transform a republican state into a
beneficent ruler, whose business it is to make them
happy, furnish them with bread, and otherwise pro-
vide them with all the things of which they stand in
need — their needs being only limited by their desires.

Social theorists, like Eugene Fourniere ^ have held,

* See Yves Guyot, Les Principes de '89 et le Socialisme. La
Democratie Individualiste.
Mbid.

CHARACTER OF PUBLIC OPERATION

despite all the evidence to the contrary, that they are
defending the rights of the individual.^

Philip Snowden, M. P., representing the Labor
Party in Great Britain, is at any rate logical when he
says : *

"The object of Socialism is not to render the indi-
vidual capable of living on his personal resources. That
is the theory of radical individualism. Its object is to
create in him a greater and greater sense of his depend-
ence upon the state, and, at the same time, to inculcate in
him the conviction that he is a part of it and that he has
a duty and responsibility toward the state; and that
only in so far as he fulfills this duty can he benefit by
the advantages of a complete personal and social life."

5. The budget puts a curb on Socialism, at least in
so far that it makes taxes necessary ; those who would
otherwise rush into reckless expenses feel the burden
of these same taxes sufficiently themselves to bring
home a vague realization of the following truth : Noth-
ing is free; everything must be pafld for. If the whole
burden could only fall on others they would rejoice
in running into debt. Far from preaching economy
in the way of expenses. Socialists encourage prodigal-
ity, and they consider that fiscal confiscation is an in-
strument of social revolution.

Sidney Webb says : "The housing of the poor will
absorb, through taxation, a continually increasing
share of the income of the nation ; and this increase of

^ L'lndividu V Association et L'Stat, Paris, F. Alcan.
'Upon the Insurance Bill, Labour Leader, July 14, 1911.

433

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

local taxes is an unheeded sign of the gradual nation-
alization of the soil." ^

We shall be almost at the "great day" of "the social
cataclysm," when, after refusing to pay the debts due
the government and municipal creditors, the Socialists
are able to exclaim: "At last we have gone bank-
rupt."

6. We hear frequent remarks concerning the crisis
of parliamentarianism, of the inefficiency and lack of
power of our representatives. As a matter of fact,
our representatives are guilty of wishing to do that
which they know perfectly well no one of them can do,
whatever be his efficiency or his capacity for work.

Now, parliamentary government is possible only on
condition that it be divorced from all secondary ques-
tions, and all questions which do not concern domestic
or foreign security are subsidiary and more or less
negligible, in so far, at least, as direct government in-
terest is concerned. Parliamentary government will
be strong in proportion as its activities are confined
to the fundamental duties of a state.

Statesmen who pursue an opposite policy are paving
the way for anarchy. They are surrendering the insti-
tutions and the general policy of the country to the
will of those who see only their own interest. They
become the proteges of the employees whom they ought
to control. They defer all questions to the convenience
of the ringleaders of associations of their employees.

In the measure that they are willing to burden them-
selves with functions properly belonging to individ-

^ Socialism in England, page lep.
434

CHARACTER OF PUBLIC OPERATION

uals they are sacrificing the general interest and en-
dangering the security of the state, and chiefly for the
sake of employees who consider themselves as the real
proprietors of services which they are paid to perform.
The interference of the state in the economic activity
of the nation means the ultimate disintegration of the
state.

7. The message of the Swiss Federal Council ^ to
the Chambers, proposing the creation of an administra-
tive tribunal, contains the following passage :

"In the degree that a modern state extends the circle
of its functions and that its component parts penetrate
within the domain reserved down to the present to pri-
vate enterprise, the number of its employees increases to
vast proportions and the citizen, threatened in his indi-
vidual rights by an official autocracy, scents the danger
of encroachment on the part of the all-powerful state
and feels an instinctive need of efficient protection
against this inimical force."

M. Brouilhet, French socialist reformer and partisan
of government intervention, says :

"We can remember when public opinion was most leni-
ent to the government; but since the government, de-
siring to conciliate the people, has become an active
participant in trading enterprises, a reaction has set in,
and truly public opinion is now lacking in indulgence."

As for France, M. Brouilhet concludes :

"Before the government absorbs another tenth of the
general activity of the country a long time will certainly
elapse."

' Gazette de Lausanne, February i, 1912.

435

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

In a remarkable article, appearing in the Gazette de
Lauzanne, Edouard Secretan, member of the National
Council, declares :

"About 30 years ago the Federal power was first and
foremost political. Its principal business was the na-
tional defense, and the relations between Switzerland
and foreign countries.

"In domestic affairs its action in regard to the cantons
was advisory and disinterested in character, its interven-
tion as limited as possible. It governed from above and
devoted itself mainly to establishing national unity.
Under this regime we became a nation under a Federal
government chiefly interested in seeing the right prevail.

"But things have changed. The Federal government
has chosen to become banker, common carrier, insur-
ance broker, and it is only a question of time before it
will become a merchant. It is only half a banker, but
it has become a real common carrier and this operation
has made it a debtor for 1,500,000 francs, owed almost
exclusively to foreign creditors.

"To the enormous enterprise of transportation has
now been added insurance. Here, again, we must count
by millions.

"To-day our whole political life is dominated by finan-
cial preoccupations, and technical experts have taken the
place of statesmen.

"They impose themselves on the Federal Council on
the basis of responsibilities they have themselves in-
curred, and the Federal Council transmits to the Cham-
ber the will of this or that general manager of some pub-
lic undertaking. In fact managerial authority has a
tendency to become dictatorial authority.

"The German part of Switzerland, Bern, Zurich,
Aaron, etc., is the storm center of all this propaganda.

436

CHARACTER OF PUBLIC OPERATION

Romance Switzerland still resists. It has twice rejected
the state bank, twice the insurance monopoly, and once,
at least, the purchase of railroads."

8. The experiences arising from state and municipal
trading operations lead inevitably to the following con-
clusions :

1. Public monopolies kill the spirit of initiative by
destroying competition. The ultimate result is fatal
industrial lethargy.

2. Public operation emphasizes the special demands
of the community, rather than fundamental necessities,
and provides opportunities for nepotism, graft, and
corruption.

3. Operation by states and local governments is
more difficult than private management. This is a
rule which holds good, despite a few apparent excep-
tions.

4. Government employees, paid for their loyalty to
the public interest, come to consider their positions
as their own private property, and, the more numerous
they are, the more they incline toward exchanging their
role of subordinates for that of masters; from being
directed they become the directors.

5. Intervention of the public power has an adverse
influence upon the distribution of wealth; sometimes
it is the whole body of taxpayers who must sufiFer for
the sake of some privileged class, sometimes the con-
sumer is defrauded to benefit the taxpayer.

6. In every public enterprise the risks of loss are
borne by the taxpayers, and, in order to realize their
immediate ideals, and, while waiting for the hoped-for

437

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

increase of personal influence, statesmen or municipal
officials tie up the finances for a more or less long
period, meanwhile burdening the taxpayers of the fu-
ture with expenses for which they will have to provide
without having consented to them.

7. All such trading operations oppose political to
economic competition.

The propaganda of public ownership has established
more firmly than before the truth of the following in-
dustrial laws:

First: Neither states nor municipalities should at-
tempt tasks especially adapted to individual effort.

Second: In the case of those utilities in which the
public interest is general^ as railways, water, gas, elec-
tricity, tramways, etc., there must be a physically and
morally responsible body, accountable to the public on
the one hand and the service on the other, and pro-
tected by contracts against vacillations of public opin-
ion and the extortionate demands of interested groups,
whether employees, consumers, or politicians.

Third: For individuals the watchword should be ac-
tion; for local and state governments, control.

438

APPENDIX "A"

ALCOHOLISM IN RUSSIA

The best minds in Russia stand aghast at the rav-
ages wrought in Russian society by the abuse of vodka,
the national spirituous drink of the lower orders. The
Government at St. Petersburg has maintained a mon-
opoly in the manufacture and sale of this commodity,
and has promoted with great energy its production
and use. The Army and Navy that fought with Ja-
pan were supported by the revenue that came from
this monopoly, and Russia, we are told, has replenished
the privy purse of its sovereign from the sale of a
drink that is actually tending to the demoralization of
the common people. As far as we can learn from the
opinion of the Russian press, ever since the Russian
Government declared vodka a state monopoly, and as-
sumed the role of the saloon keeper, the liquor business
there has been making rapid progress, and has become
one of the main sources of income of that country.
Last year the Government of the Czar realized from
the sale of liquor $412,000,000, and for the first six
months of this year the proceeds exceded those for the
corresponding period of last year by nearly $23,500,-
000, which figures, perhaps, tend to show that the Rus-
sian bureaucracy has been successful in one branch of

439

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

endeavour, at any rate. It may be recalled here that
Mr. Maklakov, the Minister of the Interior, said in an
interview with a French journalist some time ago that
the "severe climate of Russia makes alcohol a vital
necessity to the masses." But some Russians do not
agree with that statesman's view, and have very dif-
ferent ideas about the results of the Government's ac-
tivity in that direction. "Public drunkenness has been
growing to extraordinary proportions," says the
Ryetch (St. Petersburg), and the increase in drinking
"has assumed a really threatening character." The
radical press, and even some conservative organs, have
been conducting a vigorous campaign against the
liquor monopoly. Mr. M. Menshikov, of the Novoye
Vremya (St. Petersburg), condemns it in the follow-
ing words :

"A state monopoly of the source of drunkenness ex-
ists only here, in Russia, and all the rest of the world
— it seems, without exception — does not allow the
complicity of the Government in this public vice. In
the whole world, even in the barbaric and pagan, the
role of the Government is presumed to be a struggle
against vices, but not participation in the way of their
exploitation. . . . Our official publicists (oh, how
hard their task is ! ) maintain that the Government sells
alcohol exclusively with a view to limiting the evil :
that if it should allow perfect freedom in the manufac-
ture and sale of this poison, drunkenness would reach
'quite incredible limits.' However, the experience of
all nations — ^both Christian and pagan — which grant
freedom in this respect shows different results. Pub-
lic intemperance in those countries persists, but it is far

440 »

less and not so appalling as here. Why? For one
simple reason. Repudiating the monopoly of liquor,
the governments in the West deprive this vice of the
most powerful capital in the world, that of the state.
They deprive it of the most powerful mechanism of
distribution, the governmental system. They take
from it the highest authority, that of state approval.
That alone constitutes a hard blow to vice. . . .
Some may say : Permitting the manufacture, sale, and
consumption of alcohol, the governments in the West
grant freedom to this evil. Not at all. Only an oppor-
tunity for evil is afforded, but simultaneously measures
are taken to limit the opportunity. Not getting into
an irreconcilable contradiction with itself, like our
Government, the western authorities can fight drunken-
ness like any other vice. But here the temperance
movement, as is known, frequently meets with opposi-
tion on the part of the Government. The resolutions
of numerous village assemblies regarding the closing
up of saloons and Government liquor stores have not
been affirmed, petitions have not been granted, preach-
ers of temperance have frequently been dealt with as
common rioters, and subjected to punishment. . . .
Despite the categorical 'wish' of the Imperial Duma
that liquor should not be sold in the colonization lands
of Siberia belonging to the Government and the Minis-
try of Domains, liquor is being freely sold therej
. For many years the press and society have
pointed to the unseemliness of selling liquor on great
Christian holidays or in the early hours when the
working people go to their factories and mills, or of
selling it in such small quantities that the last cent

441

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

might be taken from the beggar. The indeccHcy and
the great harm of it are well understood, but what can
you do if the nature of trade in general and that in
liquor in particular demands that the trade should
adapt itself to the chief consumer — the drinking
masses? Having become the owner of and dealer in
such a poisonous product, the Government has placed
itself in a false position from which there is no way
out. To limit the traffic means to limit the income
. . . ; not to limit it means really to make drunkards
of the people."

In conclusion, Mr. Menshikov takes this more hope-
ful view, however :

"No matter how much bureaucratic eloquence the
'liquor publicists' should expend, the fate of the liquor
monopoly in Russia is already decided. If not the
days, the years, of this unhappy child of Count Witte
and Kokovtzov are numbered. I say this with abso-
lute certainty, because I cannot conceive that the cloud-
ing of the Government's consciousness in this question
can last much longer. Seeing the terrible results of
public intemperance, it is quite improbable that the
Duma and the Imperial Council will not attempt to
check the danger, that the church will not take a hand,
enlightened society, and lastly the Government itself."
— Translations made for The Literary Digest.

'442

APPENDIX "B"

THE FINANCIAL YEAR IN AUSTRALIA

Effects of Labour Rule.

(from our correspondent)

Sydney, Oct. 21.

Three and a half months have elapsed since the
close of the past financial year, and it is only now that
it can definitely be said how the figures for the year
were shaped. Even now the New South Wales Budget
for the current year has not been forthcoming, which
is a serious inconvenience, because New South Wales
has built up a heavy deficit, and the position needs
righting. But it would be a blow to the Labour Party
now in office to impose fresh taxation prior to the
State elections just ahead, and so the question has been
shelved. The Commonwealth Budget was delivered
early in October, and five states have put forward their
estimates — two within the past week.

State revenues expanded at a slower rate last year,
as can be gathered from the following statement, while
expenditures increased without check in two of the
states :

443

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

SIX STATE REVENUES COMBINED

Expendi-
Revenues. tures. Excess of

1910-11.. .. £37,365,653 £37,499,315 Expenditure, £133,662

1911-12.. .. 41,278,034 41,148,646 Revenue, 129,388

1912-13.. .. 43,056,398 44240,805 Expenditure, 1,184,407
Estimates (say)

1913-14. . .. 46,050,000 46,600,000 Expenditure, 550,000

The estimates for 1913-14 are composed of five
Budget statements, and, in the case of New South
Wales, allow for an increase of £400,000 in taxation,
which the Premier foreshadowed, and an average
growth in other revenues. Now, it will be noticed that
in 1911-12 the combined revenues increased £3,913,-
000, but in 1912-13 the increase was only £1,778,000,
or not one-half that of the previous year. But the ex-
penditures, which increased £3,649,000 in 1911-12,
further increased £3,092,000 in 1912-13 — hence the
combined deficiency.

With regard to the estimates for 19 13- 14, it will be
seen that an increase of close upon £3,000,000 is al-
lowed for, including further taxation in New South
Wales and West Australia. Whether it will be realized
is the unsolved problem. Revenues have lost much of
their elasticity just now.

GROWTH OF LABOUR EXPENDITURE

But these combined results tar all the States with
the same brush, and that is altogether unfair. Four
of the states are not under labour administration, while
two (New South Wales and West Australia) are so.
Separating the returns for last year into the two
groups, we have the following:

444

Expendi-
Revenue ture.

Two Labour Govern-
ments .. £20,857,115 £22,275,898 Deficit, £1,418,783

Four other Govern-
ments . . . . 22,199,28 3 21,964,907 Surplus, 234,376
£43,056,398 £44,240,805 Deficit, £1,184,407

The two labour-governed states secured £1,114,000
of the year's revenue expansion, while the remaining
four gained only £664,000 ; but the latter group all lived
within their incomes, while the two labour administra-
tions lived much beyond them. Similar results were
shown in the preceding year, only of a less pronounced
character, and they are again apparent in the new
financial year's estimates, and both these labour admin-
istrations have already imposed more taxation, and
their programs include yet additional taxation in
1913-14.

Labour has been three years in office in New South
Wales, and two years in West Australia. But a three
years' comparison of the two groups is altogether re-
markable :

AUSTRALIAN STATE EXPENDITURES.

Two Labour Four Other

Goveraments. Govenunents.

igoQ-IO £16685,882 £18,887,372

I9I2-I3 22,275,898 21,964 907

Three years' increase . . £5,590,016 £3,077)535

or 33 ■ 5 per cent, or 16.3 per cent.

The whole reason for the marked retrogression un-
der labour finance has been in the striking growth of
their expenditure, which relatively in the past three
years has been twice as rapid under labour administra-
tion as under what Australians term Liberal adminis-

445

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

tration. It is quite to be understood. Labour came into
office on the votes of a class, and that class is master.
It cannot be denied what it asks for, and in fact the
legislative programs have to be submitted to the caucus
at the Trades Halls and approved before they can be
put forward.

When these administrations came into office — and
the caucus into power — it was boasted that the burden
of their schemes should be placed upon the shoulders
able to bear it. But their expenditures have run away
from their incomes all the same, and the burden has
been spread, as the increased cost of living specially
affects labour.

What is more, in the efforts to find money for state
employees, which have multiplied greatly, loans have
been called upon to supplement revenue freely. The
railways and other public works are needed, but the ef-
fect of the increased loan expenditure on the volume of
state employment has been marked all the same. How-
ever, the effect upon revenue has been beyond contro-
versy. Happily, all six of the state governments are
not under labour rule, and the commonwealth has re-
cently made a change. The state election in New South
Wales, just ahead, may do so likewise. But in the
foregoing statements facts only have been dealt with,
and facts are above the party cries current in Australia.

With respect to the revenue estimates for the cur-
rent year, over £2,000,000 of the expected increases go
to the two labour administrations and f 1,000,000 to the
remaining four states; but, then, the labor govern-
ments are augmenting taxation, and may not realize
their estimates. However, that remains to be proved.

446

APPENDIX "b"

THE COMMONWEALTH AND THE STATES

Labour has also been three years in office in the Com-
monwealth, and the expenditure has been more than
doubled — growing from £7,499,517 in 1909-10 to
£-^5>779A^3 in 19 12- 13. Much of the increase is for
value received, including the fleet nucleus. But every
department has grown enormously, like the post-office,
which cost £3,231,198 in 1909-10 and £4,783,744 in
1912-13 — an increase of 48 per cent., excluding con-
struction. The expenditure of Australia (common-
wealth and states), excluding all duplications, was last
year £59,780,088, and the combined revenues £58,492,-
834, the net deficiency having been £1,287,254. The
commonwealth accounts showed a surplus of £391,550,
but that was because £494,397 of the expenditure was
charged to the accumulations from previous years.
That was legitimate, but the actual expenditure of the
year is given in the above statement. The common-
wealth expenditure in the current financial year is
placed at £15,147,000, but that is after deducting
£2,653,223 charged against the accumulations of previ-
ous years, wiping them out completely.

Australia has tried the efiFect of labour rule, and has
paid the bill, apart from the deficits. This serves to
show what the cost has been, and that cost may have
some effect on the elections. That it has been a bur-
densome luxury is clear, while whether class legislation
is the best of legislation is a matter which may be left
to consideration. Class legislation never gives the re-
sults anticipated.— The Times (London), November
29, 1913-

447

APPENDIX "C"

THE SHORTCOMINGS OF THE TELEPHONE IN
ENGLAND

To anyone who has had practical experience of the
United States telephone service, resulting from private
enterprise, the inferior condition of the English service
excites no wonder. The history of the telephone in
the United Kingdom during the past 30 years has been
a lamentable tale of bureaucratic blundering, tolerated
by a community which has failed to perceive the poten-
tial value of this method of communication and to in-
sist upon its efifective organization on a business basis.
As the result of a short-sighted Government policy, of
official mismanagement, and the parochial attitude of
local authorities, the number of telephones per hundred
of the population in Great Britain to-day is 1.4, as
against 8. i in the United States. London, the greatest
city in the world, boasts 2.8 telephones for every hun-
dred of its inhabitants, as against a percentage of 24.0
in Los Angeles.

One of the chief obstacles barring the way to satis-
factory development of the telephone as a public utility
has been the traditional conservatism of the Post Office
and the fixed idea of protecting the Government's tele-
graph revenues against efifective competition by the

448

APPENDIX "c"

telephone. In 1889 the Postmaster-General (after de-
clining to purchase the telephone patents) brought a
suit to prevent the Edison Company from establishing
telephone exchanges in London, as constituting an in-
fringement of his telegraph monopoly. Successful ad-
ministration of an industrial enterprise like the tele-
phone requires vigilant initiative and elasticity.

PRIVATE ENTERPRISE IN AMERICA

In America the possibilities of the telephone as a
time-saving and labor-saving invention were better
realized from the outset. Thanks to the intelligence,
foresight, and public spirit of Mr. Theodore N. Vail,
founder of the telephone enterprise in the United
States and still president of the American Telephone
and Telegraph Company, the business has been steadily
built up with high ideals of organized efficiency and
civic duty. Mr. Vail's ambition was, and is, "that
every person, firm, or company in the United States
that ought to have a telephone shall be provided with
one, and that any person so provided, wherever he may
be located, can within a reasonable time be connected
to the telephone of any other subscriber and talk satis-
factorily." For 30 years work has been steadily car-
ried on with this ideal in view, and with marvellous
results. At the International Telephone and Telegraph
Conference held in Paris in September, 1910, the chief
engineer of the company summarized some of these
results as follows:

In the plans which we have made for New York and for
the other cities in America it has been found, all things con-

449

Where and why public ownership has failed

sidered, most economical when building new subways to plan
for a period somewhere between 15 and 20 years ahead.

Our expenditure for new construction during the first six
months of 1910 is more than $21,000,000.

The fundamental plans for New York, not including the
vast suburban region outside of the municipal limits of Greater
New York, provided in 1900 for a system of 51,398 telephone
stations, served from 52 central offices, with an estimated popu-
lation of 4,800,000. In 1930 the plans provide for 2,142,000 sta-
tions, to be served from 109 central offices, with an estimated
population of 8,800,000.

At the present time an enormous amount of toll line business
takes place between New York City and the territory tributary
to it for 30 miles around. In go per cent, of this business the
connexion is made in an average of 38 seconds. In all of these
cases the transmission conditions are so planned that the sub-
scriber may converse with ease. A local call is accomplished
in less time, requiring only 22 seconds where but one office is
involved, and slightly more between two offices.

Between cities as far distant from each other as
New York, Boston, Washington, and Philadelphia,
"Good talking with prompt connexions" by under-
ground cables is the regular rule, while communication
by phantom loaded overhead circuits has been extended
as far west as Denver, distant 2,200 miles from New
York.

RESULTS OF EFFICIENT SERVICE

There is no doubt that the superiority of the Amer-
ican system has been attained in a great measure by
administrative ability in its organizers and the wide
field of opportunity, with few serious obstacles of com-
petition, in which they have worked. Their outlook
has been steadily national, not parochial. They have
realized that defective telephone communication is, in
every sense, bad business, and that the factors consti-
tuting good service, in the order of their importance,
are (i) speed and accuracy in securing connexions;

450

APPENDIX C

(2) volume and clearness of sound transmitted, and

(3) cost. They have realized that the money value of
the time and temper wasted by the public over a bad
service is a far more serious consideration than any
reasonable charges imposed for a good one, and they
have therefore proceeded on the principle that speed
and reliability are more important than cheapness.
Furthermore, Mr. Vail's civic ideals have been applied,
with loyalty and enthusiasm, throughout. Esprit de
corps, and a spirit of emulation between exchanges are
encouraged to the utmost. One of the best features of
the telephone business, as organized in America, is the
public appreciation of the staff's keenness, its "team
work," and pride in efficiency.

Under such conditions the public service retains its
human interest — no small factor in smooth working —
and the "telephone habit" becomes easily explicable.
In January, 191 1, the number of telephones in New
York was equal to the combined totals of London,
Paris, and Berlin.

FAILURE OF GOVERNMENT CONTROL

In Great Britain the history of telephone legislation
has persistently reflected the vacillations of immature
opinion, strengthened by the attitude of permanent offi-
cials of the Post Office and the Treasury. The situation
to-day is the result of years of laisser-faire, improvi-
dence, and vacillation. Its economic defects and inad-
equate equipment are the natural consequences resul-
tant from the National Telephone Company's inability,
as the expiry of its franchise drew near, to provide for
expansion of service and renewal of plant, j The

451

WHERE AND WHY PUBLIC OWNERSHIP HAS FAILED

economical construction of new underground cables
alone involves plans and estimates for a period some-
where between 15 and 20 years ahead. Further causes
of disorganization lie in the relaxation of discipline
and esprit de corps consequent upon the transfer of the
telephone company's personnel to the Post OfHce; in
the jealousies and friction between old employees and
new, all tending to impair smooth working ; above all,
in the technical telephone staff's recognition of the fact
that under the cast-iron, water-tight compartment sys-
tem of Post Office tradition there is little or no scope
for intelligent individual initiative and scant prospect
of applying business methods to the development of
what should be a rapidly expanding commercial under-
taking, managed by the best technical and financial
talent obtainable.

There are many experts qualified to speak with
authority on this question who share the views ex-
pressed by Lord Desborough, as president of the Lon-
don Chamber of Commerce, on May 18, 191 1.

Many chambers of commerce besides the London Chamber,
he said, had discussed the subject, and they were unanimously
of opinion that it would be very much better for the telephone
service of this country to be in the hands of a board of experts
than to hand it over to a Government Department. . . .
Business men would like to see an independent authority
formed, somewhat on the lines of the Port of London Author-
ity, or in any case formed of business men and of experts,
with sufficient Government representation. Such men would
be alive to the needs of the business community and accessible
to representations from them, and would bring the telephone
service of this country up to the requirements of the nation. —
The Times (London), December i, 1913.

452

INDEX

Accounting, Government, 43-
45, 144.
Denmark, 36; Holland, 36;
France, 37-41 ; Austria, 42 ;
Railroads in Belgium, 46-
54; Railroads in Germany,
67-70; New South Wales,
192; France, 199-204.

"Active Service," 312.

Alcohol Monopoly, vii.

Switzerland, 12, 18, 207-212;
Russia, 13, 212-21S, Appen-
dix "A"; Germany, 205-
206 ; Austria, 206-207 ;
Italy, 207; Belgium, 207;
France, 385-386.

Alglave, Emile, 205, 211-212.

Australia.
Mines, 191 ; Labor, 302 ;
Great Fortunes, 428; La-
bor Government, Appen-
dix "B."

Austria.
Government Ownership, 21 ;
Accounting, 42; Cost of
Municipal Ownership, 43;
Railways, 72-74, 275-276,
338, 374-375 ; Municipal
Housing, 167 ; Alcohol,
206-207; Mines, 396-397.

Avebury, Lord.
On Municipal and National
Trading, 67.

Balfour, Gerald, 138-139.
Ballance, John, 31.
Banks, State.
Prussia, 22.
Barthou, Louis, 12, 14, 105.

Bath, England.

Electricity, 132.
Bavaria.

Average Railway Receipts,
^ 74.

Beaux Arts, 7, 8.
Begg, Faithful, 259.
Belgium.
Shipping, 21; Railways, 21,
46-54, H9, 274; Municipal
Housing, 165-166; Alcohol,
207.
Belloc, Hilaire, 189, 401-402.
Berlin.

Milk Rates, 61.
Bertreaux-Rabier-Joures, 402

403.
Birmingham, 150.
Tramways, 10, 140; Gas,
128; Electricity, 131-132;
Housing, 155-156; Munici-
pal Finance, 188-189.
Bismarck, Otto, Furst von, 56-

57, 205-206, 401.
Boston.

Street Railways, 140.
Brewer, David J., 422.
Bryan, William J., 119.

Churchill, Winston, 378.
Clemenceau, George, 11, 105.
Colson, Clement, 116, 257.
Congress of the Federation

of Municipal Enterprises,

20.
Contracts, 401-422.
Copenhagen.

Municipal Accounts, 36.
Corruption, 423-426.

453

INDEX

Darwin, Major Leonard, lO,
127, 133, 189.

Dausset, Louis, 302-308, 325-

Denmark.

State Ownership, 17; Mu-
nicipal Ownership, 18; Ac-
counting, 36.

Docks.
London, 24; Austria, 42.

Droz, Numa, 93, 209-210.

Edinburgh.

Gas and Electricity, 134.
Elbeuf, Mayor of, v, 181.
Electric Lighting Act of 1882.

In Great Britain, 25.
Electricity.

Paris, 21 ; London, 26 ; Den-
mark, 36; Great Britain,
131, 133, 29s; Birming-
ham, 131-132; Bath, 132;
Results in Edinburgh, 134;
Glasgow, 134; Germany,
260-265.

Fabian Society, 66.
Faure, Fernand, 236.
Field, William, 66.
Finance, Government.
France, 216-233, 236-240 ;
Great Britain, 233-235.
Finance, Municipal.
Great Britain, 183-190; Ger-
many, 190.
Folkstone, England.

Housing, 158.
Food Supplies, Municipal.
Switzerland, 175-179 ;
France, 179-180, 386-387 ;
Italy, 180.
Forsans, Paul, vii.
Foumiere, Eugene, 432.
France.
Western (state) Railroad,
viii, 4, II, 14, 105-113, 116,

242, 259 ; Government
Ownership, 20 ; Account-
ing. 37-41; Railways, 105-
117, 122-123, 259, 272-279,
311-312, 373. 377, 387-388,
403-407; Bond Issue, 114-
117; Report on Cheap
Housing, 162-174; Food
Supplies, 179-180; Na-
tional Printing OflSce, 192-
193, 219-222, 256-257, 288-
289, 339-340 ; Tobacco
Monopoly, 194-201, 203-
204, 289-290, 351-353; Ac-
counting, 199-204 ; Match
Monopoly, 201-204, 349-
351; Government Finance,
216-233, 236-240 ; T e 1 e -
phone, 241, 280-286, 297,
354-363 ; Southern Ca-
nal, 241 ; Old Age Pen-
sions, 246; Fire Insurance
in the Cote d'Or, 250-252;
Telegraph, 286-288; Army
and Navy, 296; Navy, 308-
311; Labor, 308-316, 324-
343; Post Office, 353-354;
Employment Agencies, 366-
368 ; Alcohol Monopoly,
385-386.

Franchises.
Italy, 411-413-

Freycinet, Charles de, 8, 14.

Garibaldi, Giuseppe, 164.

Gas, 127-130.
London, 25 ; Denmark, 36 ;
Manchester, 128; Bir-
mingham, 128; Great Brit-
ain, 120, 130, 133-135, 317-
318; Edinburgh, 134;
Glasgow, 134; Paris, 305-
308.

Germany.
Government Ownership, 22;
State Coal Mines, 22; Em-
ployees, 22; Railways, 55-

454

INDEX

71, 191, 274; Housing, 162-
164 ; Municipal Finance,
igo ; Alcohol Monopoly,
205-206 ; Fire Insurance,
249-250 ; Electricity, 260-
265; Municipal Ownership,
265-266.

Giolitti, Giovanni, 18, 407-413.

Glasgow, 150.
Tramways, 139-140; Hous-
ing, 156-157.

Great Britain.
Municipal Enterprises, 23 ;
Public Health Act, 23;
Railways, 118, 119, 122,
191 ; Results of Gas and
Electric Enterprises, 132-
135; Tramways, 136-150;
Housing, 151-160; Munici-
pal Finance, 183-190; Gov-
ernment Finance, 233-235 ;
Piers, 258-259; Labor, 344-
347 ; Telephone, 363-364 ;
Appendix "C."

Grierson, J., 66

Griiber, jf. G., 21.

Guerigny.

Steel Plant, 223-227.

Hadley, Arthur, viii.

Holcombe, A. N., 294.

Holland.

Coal Mines, 18; Railways,
18, 74, 119; Official Jour-
nal, 18; Accounting, 36;
Mines, 37; Housing, 166.

Housing, Municipal.

Great Britain, 151-160;
Europe, 162-174-

Housing of the Working
Classes Act of August
18, 1890, in Great Britain,

151-

Humanite, vi.

Hungary.
Railways, 73-76, 275; Hous-
ing, 167-168.

India.

Railways, 119.

Insurance Monopoly, vii.
Italy, 20, 193, 243-249, 375-
377, 407-411 ; New Zea-
land, 28; Uruguay, 249;
Germany, 249-250 ; Switz-
erland, 250; France, 250-
252.

International Statistical Insti-
tute of 1900, 16, 17.

Ireland.
Tramways, 137.

Iron.
New South Wales, 192.

Italy.
Municipal Enterprises, 18 ;
Law of March 29, 1903,
governing the Purchase of
Municipal Undertakings,
19 ; Insurance Monopoly,
20, 193, 243-249, 375-377.
407-411; Railways, 77-87,
122-123, 373-374; Housing,
164-165 ; Food Supplies,
180; Alcohol, 207; Old
Age Pensions, 244; Fran-
chises, 411-413.

Kelly, Edmond, 382.

Labor, 98, 99, 298, 299, 434.

435- „ ^

Denmark, 17, 18; German
Coal Mines, 22; German
Railroads, 70-71 ; Hungar-
ian Railroads, 76; Italian
Railroads, 80, 83-85; Swiss
Railroads, 92-93 ; New
Zealand, 98, 343-344;
French Railways, 113, 403-
405; Railways, 124; Great
Britain, 128, 143, i47, 3i6-
318, 319-320, 344-347;
France, 204, 308-316, 324-
343; Paris, 301-308; Aus-
tralia, 302, Appendix "B";
Prussia, 318-319; United

455

INDEX

States, 320-324 ; Switzer-
land, 326; Austria, 338;
Employment Bureaus in
France, 366-368.
Law, Bonar, 138.
Lefevre, Shaw, 136.
Legal Decisions.

French Railways, 123.
Leicester.

Housing, 157.
Leon, Paul, S7-
Light Railways Act in Great

Britain, 138.
Lille.

Telephone, 358-360.
Liverpool.

157-

Housing,
London.
Water,
Board
Docks,
tricity,
ways.

24 ; Metropolitan
of Works, 24, 26;
24; Gas, 25; Elec-

26 ; Street Rail-
26, 142-147; Ship-
152-

ping, 27 ; Housing, 27,

154, 159-
London County Council.

Industrial Operations, 24-26.
Lotteries.

Austria, 4a.
Louvre.
Roofing and Lightning Rods,
7; Art Collections, 8.
Luzzatti, Luigi, 165.

McDonald, Ramsay, 189, 389,

401-402.
McKenzie, John, 31.
Macler, Charles, 272.
Majerczik, Wilhelm, 260.
Manchester.

Housing, 157; Gas, 269.
Mange, Alfred, 57.
Matches.

France, 201-204, 349-351-
Meyer, Hugo, 61, 140, 141.
Milhaud, Edgard, v, vi, vii,
272, 394-397-

456

Millar, Hon. J. A., 97.

Milwaukee.
Municipal Ownership, 182.

Mines.
Holland, 18, 37; Germany,
22; Austria, 42; New
Zealand, 104 ; Australia,
191; Prussia, 253-255, 318-
3^9, 364-365.

Mints, 17.

MuUins, Claude W., 431.

Municipal Corporations Act of
1882, 23.

Municipal Employees Associa-
tion, 318.

Municipal Ownership, 394-397.
Denmark, 18 ; Italy, 18 ;
Paris, 20, 266-267; Aus-
tria, 21 ; Great Britain, 23,
125-126, 141-144; Russia,
27 ; Cost in Austria, 43 ;
Milwaukee, 182 ; G e r -
many, 265-266 ; Manches-
ter, 269.

National Civic Federation,

22.
National Union of Gas Work-
ers and General Laborers,
318.
Nationalization of the Soil.

New Zealand, 30-32.
Navies, 258.
France, 227-230, 308-31 1 ;
United States, 257-258.
New Jersey.
Public Service Corporation
of, 420-421.
New South Wales.

Iron Industry, 192.
New York City.

Labor, 320-324.

New Zealand.

Government Ownership, 28;

Prussic Acid Process, 29;

Nationalization of the

Soil, 30-32 ; Property

INDEX

Holding, 32; Railways, 94-
104; Labor, 343-344; Cor-
ruption, 424; Great For-
tunes, 427-428.
Norway.
Housing, 168.

Official Conservatism, 292-299.

Operating Ratios.
Prussian Railways, 70; Ital-
ian Railways, 85 ; Swiss
Railways, 91 ; French
Railways, 116, 117, 120.

Panama Canal, 415-421.
Paris.
Municipal Ownership, 20-21,
41, 266-267; Water, 21,
348-349 ; Electricity, 21 ;
Street Railways and Sub-
ways, 21 ; Stone Quarry,
42 ; Municipal Housing,
170; Credit, 171; Labor,
302-308, 325-326.
Pelletan, Camille, 9, 402.
Peschaud, Marcel, 46.
Pensions, Government, 312.
Italy, 244, 407-41 1 ; France,
246.
Peter the Great, 212.
Piers.

Great Britain, 258-259.
Plymouth, England.
Housing, 154-155-
Port of London, 24.
Postal Savings Banks.

Great Britain, 235.
Postal Systems, 17.
United States, 23; Cost in
Holland, 36, 37; Sweden,
41; France, 222, 230-233.
Post Office.

France, 353-354-
Pratt, Edwin, 63, 118.
Prussia.
Railways, viii, 5S-7I. 74. "8,

123; Mines, 253-255, 318-
319; Corruption, 423.

Public Health Act of 1875 »"
Great Britain, 23.

Publications, State.
Holland, 18.

Raffalovich, Arthur, 16, 17,
265.

Railways, Government.
Prussia, viii ; Western
(state) Railroad of
France, viii, 4, 11, 14, 105-
113, 116, 242, 259; Den-
mark, 17; Switzerland, 18,
88-93, 242, 293, 326, 431;
Holland, 18; Belgium, 21,
46-54 ; Sweden, 21, 41 ;
Austria, 43, 72-73, 374-375;
Germany, 55-71 ; Alsace-
Lorraine, 56; Prussia, 56-
71 ; Taxation in Germany
and Great Britain, 57;
Hungary, 73-76 ; Bavaria,
74; Roumania, 74; Italy,
77-87. 373-374; New Zea-
land, 94-104; France, 105-
117, 118-119, 259, 272-279,
373. ill, 387-388, 403-407;
United States, 119; Great
Britain, 122-123; Labor,
311-312.

Rambla Case, The, 413-41S-

Raper, Charles Lee, 123.

Rates, 123.
Belgian Railway, 52-54 ; Ger-
man Railway, 59-68; Ber-
lin Milk, 61 ; Austria, 73 ;
Hungary, 74; Gas and
Electricity in Great Brit-
ain, 122, 129; Telephone
in France, 361-362.

Raynal, 9.

Richmond.
Housing, 157.

Riemer, Doctor Rudolph, 21.

Roche, Jules, 216.

Rolleston, Hon. William, 30.

Rosebery, Earl of, 159.

457

INDEX

Roumania.
Average Railway Receipts,

74-
Russia.
Alcohol Monopoly, 13, 212-
215, Appendix "A" ; Mu-
nicipal Ownership, 27.
Saar, District of

Mines, 253-255, 364-365.
Salford.

Housing, 158.
Samuelson, Sir Bernard, 66.
Sanitation.

France, 7.
Schelle, Gustave.
Report to the International
Institute, 16-17, 35-45, 46-

54-
Scholefield, Guy H., 30.
Sembat, Marcel, 280.
Sewers.

New York, 323-324.
Shaw, Bernard, 159, 427.
Sheffield.
Tramways, 141-142; Hous-
ing, 158.
Snowden, Philip, 433.
Socialism, 381-393, 430.
France, viii; Deiinition of,
427.
Societe des Interets ficon-

omiques, vii.
Shipping.

Belgium, 21 ; London, 27.
State Ownership, 394-397.
Denmark, 17; France, 20;
Austria, 21; Germany, 22;
New Zealand, 28.
State Socialism in New Zea-
land, 28.
Stone Quarries, Municipal.

Paris, 42.
Street Cleaning.
Paris, 303-304.
Street Railways.
Paris, 21 ; London, 26, 142-
147; Belgium, 119; Great
Britain, 136-150; Ireland,

458

137; Glasgow, 140; Bos-
ton, 140 ; Birmingham,
140; Sheffield, 141- 142;
Germany, 265.

Strikes, Government.
Italian Railroads, 80.

Subways.
Paris, 21.

Supreme Court of the United
States, 421.

Sweden.
Railways, 21, 41 ; State Own-
ership, 41 ; Postal System,
41 ; Telegraph, 41 ; Tele-
phone, 41 ; Housing, 168.

Swinton, Campbell, 131.

Switzerland.
Alcohol Monopoly, 12, 18,
207-212, Ohmgeld Duties,
12, 208; Railways, 18, 88-
93, 242, 27s, 276, 293, 326,
431; Housing, 166; Food
Supplies, 175-180; Insur-
ance, 250.

Taft, William H., 23, 420.

Taussig, F. W., 424.

Taxation.
French Railways, 120- 121 ;
Great Britain, 186-188,
191 ; German Railways,
191.

Telegraphs, 17.

United States, 23; Cost in

Holland, 36, 37; Sweden,

41 ; France, 222, 230-233,

286-288 ; Great Britain,

233-235-
Telephones, 17, 294-295.
Holland, 36-37 ; Sweden, 41 ;

France, 222, 230-233, 241,

280-286, 297, 354-363 ;

Great Britain, 259, 363-364,

Appendix "C."
Thomas, Albert, 272.
Tobacco.
France, 194-201, 289-290,

351-3^3-

INDEX

Tramway Act of 1870 in Great
Britain, 26, 137, 139.

United States.

Post Office and Telegraph
Service, 23 ; Railways,
119; Street Railways, 140-
141; Navy, 2S7-2S8; La-
bor, 320-324; Efficiency in
Government Service, 369-
372; Panama Canal, 415-
421.

Uruguay.
Life Insurance, 249;, The
Rambla Case, 413-415.

Vaile, Samuel, 103.
Vogel, Sir Julius, 28. ■
Waddington, Richard, 402.
Ward, Sir Joseph, 97.
Water.

Paris, 21, 348-349; London,

24; Denmark, 36.
Webb, H. Laws, 233.
Webb, Sidney, 433.
Welton, Benjamin, 267, 320.
Western (state) Railroad of

France, viii, 4, 11, 14, lOS-

113, 116, 242, 259.
Wilson, Woodrow, 420.
Witte, Serge de, 215.

459

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Underlying the High Cost of Living

By IRVING FISHER
Author of "The Purchasing Power of Money," etc.

Cloth, 8vo

Many books have been written on money and on the high
cost of living, but this is a book on both. It tells simply
why and how an increased gold supply and an increased use
of checks tend to raise prices. It traces the history of gold
discovery and banking in relation to price movement, gives
the latest statistics, shows how the recent reduction of the
tariff and the formation of federal reserve banks will affect
the purchasing power of our dollars and in popular language
explains how the equation of exchange fixes the general level
of prices as distinguished from the individual prices fixed by
supply and demand.

THE MACMILLAN COMPANY

Publishers 64-66 Fifth Avenue New York

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